ASIC has released Consultation Paper 169 Term deposits that are only breakable on 31 days’ notice: Proposals for relief (CP 169) on proposals for relief to allow banks and non-banks to issue term deposits for up to 2 years that are only breakable on 31 days’ notice, in order to meet Basel III liquidity requirements, while being subject to the same regulatory requirements as ‘basic deposit products’ in the Corporations Act 2001.
ASIC is also considering whether the relief should be conditional on ADIs implementing one or more of the following possible conditions:
• using a new product name for these term deposits;
• providing a warning to consumers prior to the issue of the product;
• making pre-maturity contact, to either obtain express consent to rollover, or provide a pre-maturity letter to the investor; and/or
• providing and disclosing a grace period on rollover and sending a post-maturity letter.
Comments on the consultation paper are due by 23 December 2011.
The definition of basic deposit product in section 761A of the Corporations Act does not specify the period of notice that an ADI may require a depositor to give in order to make an early withdrawal from a term deposit of up to two years (except for the special provision for mutuals contained in reg 7.1.03A of the Corporations Regulations 2001).
The long-standing practice among ADIs is to allow term deposits to be breakable at the depositor’s discretion (whether or not subject to some loss of interest). If this practice is maintained, ADIs to whom the liquidity requirements apply will need to hold a larger liquidity buffer under the Basel III liquidity standards.
To meet the Basel III liquidity standards, a depositor must have no legal right to withdraw deposits within the 30-day period to which the Liquidity Coverage Ratio applies (subject to the hardship exemption).
