The Australian Prudential Regulation Authority (APRA) has released a consultation package on proposed changes to exemption orders under the Banking Act 1959 and revised Section 66 guidelines.

Registered Financial Corporations and religious charitable development funds are currently exempt from the need to be authorised as deposit-taking institutions (ADIs).

Registered Financial Corporations

APRA is proposing requirements aimed at reducing the likelihood that an investor, and particularly a retail investor, in an RFC would confuse a debenture with an ADI deposit or other deposit-like product.

APRA proposes to restrict the use of certain terms by RFCs, including the words ‘deposit’ and ‘at-call’, and to require all debenture offerings to have a minimum maturity of 31 days.

APRA proposes that these new requirements would take effect from 1 July 2013.

APRA proposes that RFCs not allow retail investors to redeem their funds at-call. Rather, retail debenture offerings would be required to have a minimum initial maturity period of 31 days, so that for all practical purposes investments with RFCs are not able to be used for transactional banking activities. An investor would not be able to redeem, and an RFC would not be able to repay, any funds for 31 days from the date they are invested.

APRA proposes that an RFC would be required upon maturity of a debenture to either repay an investor’s funds via cash, cheque or direct credit to an account at an ADI, or to roll the investment into another debenture with a term of at least 31 days if the investor has requested that its investment be rolled over.

APRA proposes to not allow RFCs to provide certain transaction facilities, including Automatic Teller Machine (ATM) access to an account with the RFC, BPAY, Electronic Funds Transfer at Point of Sale (EFTPOS) and cheque account facilities.

Any funds raised from 1 July 2013 would need to comply with the proposed requirements. However, existing retail debenture issues would be allowed a transition period of up to three years in which to become compliant with the proposed requirements. Existing debenture issues would be required to comply with the proposed requirements at the earlier of their next rollover date or 30 June 2016.

Religious charitable development funds

APRA proposes to require RCDFs which offer products to retail investors to become either an ADI or an RFC or operate a managed investment scheme. APRA proposes to withdraw the current exemption order for RCDFs that offer retail products from 28 June 2014.

However, RCDFs that do not take funds from retail investors may continue to receive a Banking Act exemption from 28 June 2014, with five-year reviews thereafter.Conditions will include not offering BPAY facilities. RCDFs are already prevented from offering ATM, EFTPOS and cheque account facilities.

UPDATE 24 June 2013: Banking exemption No. 1 of 2013 continues to exempt religious and charitable development funds from the prohibitions in section 7 and 8 of the Banking Act 1959, until 30 June 2014.