Issued by authority of the Treasurer

Banking Act 1959

Banking Amendment Regulations 2008 (No. 2)

Subsection 71(1) of the Banking Act 1959 (the Act) provides that the Governor‑General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

The Act regulates banking in Australia and was recently amended by the Financial System Legislation Amendment (Financial Claims Scheme and Other Measures) Act 2008 (the Amendment Act) to put in place the Financial Claims Scheme (FCS).

The FCS provides a formal, targeted and efficient arrangement to ensure that depositors have timely access to their funds in the event of the failure of an authorised deposit‑taking institution (ADI). It supplements the longstanding depositor preference arrangements that give depositors a priority claim to assets over all other creditors in liquidation, but which(before the introduction of the FCS) could not ensure that such amounts would be received quickly. The Australian Prudential Regulation Authority (APRA) is the administrator of the FCS.

Subsection 16AF provides for the regulations to specify the period for clearance of transactions connected with a protected account and entered into before the failure of the Authorised Deposit-taking Institution (ADI). The regulations set this period at five days.

The purpose of the regulation is that while no new business can be transacted by an ADI following its failure, transactions already set in train prior to the failure can be finalised without compromising the need for timely payment of entitlements.

Subsection 16AH(5) provides for the regulations to prescribe a kind of protected account, an entitlement connected with which APRA must meet in whole or in part through the establishment of an account of the same kind on behalf of the account‑holder.

The purpose of regulation 6 is to prescribe retirement savings accounts, farm management deposits and first home saver accounts for this purpose, thereby ensuring that the particular access conditions for these accounts are maintained.

Section 16AM of the Act provides that the Regulations may provide for and in relation to the recovery by APRA of overpayments made purportedly to meet an entitlement under the scheme.

The purpose of regulation 7 is to specify that such overpayments are a debt to APRA and, without limiting the way in which APRA may recover the debt, may be recovered through court proceedings, withholding the amount from another payment recovering it from any distribution amounts payable to the account‑holder in liquidation.

Section 16AQ of the Act provides for the regulations to require the liquidator to act in accordance with the regulations in deciding whether to admit or reject a debt or claim and the extent of such admittance or rejection. The purpose of regulation 8 is to require the liquidator to admit the amount in relation to protected accounts that exceeds any limit on payments under the financial claims scheme in relation to that account.

Section 16AR of the Act provides for the Regulations to prescribe a kind of protected account, a distribution attributable to which the liquidator must pay into an account of the same kind held by the account‑holder or open an account of that kind on behalf of the account‑holder.

The purpose of regulation 9 is to prescribe retirement savings accounts, farm management deposits and first home saver accounts for this purpose, thereby ensuring that the particular access conditions for these accounts are maintained.

Section 16AT of the Act provides for Regulations to prescribe that APRA or the liquidator must disclose certain information to an ADI with which it has opened an account for the purpose of meeting an entitlement under the scheme or making a distribution in liquidation, and the circumstances in which that information must be disclosed.

The purpose of regulation 10 is to ensure that the receiving ADI has sufficient information for the account to continue with the same characteristics (including tax treatment) that it had when the account was held with the declared ADI.

The Act specifies no conditions that need to be satisfied before the power to make the proposed Regulations may be exercised.

The Regulations are a legislative instruments for the purposes of the Legislative Instruments Act 2003.

The Regulations commence immediately.

Authority: Subsection 71(1) of the Banking Act 1959

ATTACHMENT

Details of the Banking Amendment Regulations 2008 (No. 2)

Regulation 1 – Name of Regulations

This regulation provides that the title of the Regulations is the Banking Amendment Regulations 2008 (No. 2)

Regulation 2 – Commencement

This regulation provides for the Regulations to commence on the day after they are registered.

Regulation 3 – Amendment of Banking Regulations 1966

This regulation provides that the Banking Regulations 1966 (the Principal Regulations) are amended as set out in Schedule 1.

Schedule 1 – Amendments

Item [1] – insertion of subheading

Item [1] highlights preliminary matters relating to the name and interpretation of the regulations.

Items [2] and [3] – subregulation 2(1)

Items [2] and [3] insert into subregulation 2(1) definitions of farm management deposit, first home saver account and retirement savings account for the purposes of these regulations.

Item [4] - heading

This heading highlights that the regulations that follow relate to the financial claims scheme.

Item [5] – regulation 5B

Regulation 5B specifies at 5 business days the prescribed period of clearance for the purposes of subsection 16AF(1) of the Act and thereby allows 5 business days for the completion of clearance processes in relation to transactions connected with the protected account and entered into before the declaration of the ADI activating the scheme in respect of that ADI.

Item [6] – regulations 6 to 10

Regulation 6 prescribes retirement savings accounts, farm management deposits and first home saver accounts for the purposes of subsection 16AH(5) of the Act, thereby requiring that if an account-holder has an entitlement under the financial claims scheme that relates to a protected account of one of these kinds. APRA must establish an account of the same kind for the purposes of meeting that entitlement. These kinds of accounts have access restrictions relating to broader government policy purposes, and associated special tax treatment. The regulation effectively maintains these features for those kinds of accounts.

Regulation 7 specifies ways in which APRA is able to recover overpayments made under the financial claims scheme.

Regulation 8 requires the liquidator to admit as a debt or claim the amount in relation to one or more protected accounts that exceeds the limit on payments (if any) determined by regulations made for subsection 16AG(1) of the Act. This ensures that where the amounts that depositors receive under the scheme are limited because a per depositor cap applies, residual claims of the depositors in liquidation are taken into account automatically.

Regulation 9 prescribes retirement savings accounts, farm management deposits and first home saver accounts for the purposes of subsection 16AR(1) of the Act, requiring the liquidator to pay a distribution so far as it is attributable to the account into an account of the same kind held by the depositor with an ADI. This imposes a similar condition on liquidators as that being applied to the financial scheme administrator under regulation 6 and for similar reasons.

Regulation 10 prescribes certain information for the purposes of paragraph 16AT(2)(b) that APRA or the liquidator must disclose to an ADI with which APRA or the liquidator has established an account for the purposes of meeting an entitlement under section 16AH or making a distribution under section 16AR of the Act. The purpose of the regulation is to ensure that the receiving ADI has sufficient information to ensure that the account can continue with the same characteristics (including tax treatment) that it had when held with the declared ADI.