APRA releases revised proposals for religious charitable development funds

13.30

The Australian Prudential Regulation Authority (APRA) today released revised proposals on changes to the exemption order under the Banking Act 1959 for religious charitable development funds (RCDFs). These revised proposals are a response to submissions to APRA’s April 2013 discussion paper on this issue.



At present, Registered Financial Corporations (RFC) and RCDFs that undertake ‘banking business’, as defined in the Banking Act, are exempt from the need to be authorised as a deposit-taking institution and regulated by APRA. These exemptions are historic in nature.



APRA’s original proposal was to withdraw the current RCDF exemption order for RCDFs accepting investments from retail investors. An RCDF wishing to offer retail-type products would need to do so under an alternative regulatory regime, either as an authorised deposit-taking institution (ADI), an RFC or a Managed Investment Scheme (MIS). APRA also proposed restrictions on the use of certain terms, including the words ‘deposit’ and ‘at-call’, and on offering BPAY facilities. APRA’s objective was to minimise the risk that investors in RCDFs form the impression that an RCDF is the same as an ADI and that the products it offers are the same as an ADI product.



In their submissions, RCDFs argued that alternative regimes would be administratively burdensome and the associated costs would impede their religious and charitable activities.



Consistent with the global principle governing the boundaries between prudentially regulated institutions and shadow banking, APRA remains of the view that unauthorised entities should not be able to offer deposit products or those with features and characteristics that are clearly associated with products offered by ADIs. However, in recognition that many RCDFs have structured aspects of their religious and charitable operations in a manner that relies on funds from retail investors, APRA is no longer proposing to withdraw the exemption order for such RCDFs and require them to operate under an alternative regulatory regime.



Instead, for RCDFs currently exempted, APRA is proposing to extend the existing RCDF exemption order, but subject to additional conditions. In particular, any product offered to a retail investor will have to have a minimum term or notice period of 31 days and the use of terms ‘deposit’ and ‘at-call’ will not be allowed in relation to retail products or in marketing to retail investors. These conditions are consistent with those that APRA has recently proposed for RFCs.



APRA will continue to allow RCDFs to use BPAY to transact between affiliates of the RCDF and to offer BPAY to wholesale investors.



APRA’s response paper can be found at: ADI consultation packages



The deadline for submissions to APRA on these revised proposals is 4 October 2013.