BANKING AMENDMENT REGULATION 2013 (NO. 1) (SLI NO 8 OF 2013) EXPLANATORY STATEMENT

Section 71 of the Banking Act 1959 (Banking 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.

Under subsection 69(1A) of the Banking Act, unclaimed moneys include moneys to the credit of an account has not been operated on either by deposit or withdrawal for a period of not less than three years or if a greater number of years is specified in the regulations - that greater number of years.

Under subsection 69(1B) of the Banking Act, moneys to the credit of an account specified in the regulations are unclaimed moneys if, and only if, the conditions specified in the regulations are specified. The amendments to the regulations specify conditions for certain accounts to become unclaimed moneys.

The amendments to the regulations relate to accounts held as security or set off for a loan or other financial obligation, or as escrow for a contract with a third party. These accounts are typically frozen on a temporary basis at the request of the account holder. The authorised deposit-taking institution which holds the account, or the terms and conditions of the account, must restrict the ability of the account-holders to make deposits and withdrawals.

The conditions relating to these accounts are that no deposits or withdrawals must have been made for at least seven years. The funds will become unclaimed when these conditions are met.

The effect of the Regulation is that accounts held as security, set off or escrow will only be assessed as unclaimed moneys if they are inactive for a period of at least seven years. Examples of how the Regulation would operate in relation to these accounts are set out at Attachment B.

Treasury has undertaken targeted discussions with relevant stakeholders on the Regulation. Treasury consulted with the Australian Bankers' Association and Abacus, the industry groups which represent all authorised deposit-taking institutions in Australia.

The Regulation is a legislative instrument for the purposes of the Legislative Instruments Act 2003.

Regulation 1 specifies the name of the Regulation as the Banking Amendment Regulation 2013 (No. 1).

Regulation 2 provides that the Regulation will commence on the day after it is registered.

Regulation 3 provides that the regulation is made under the Banking Act 1959.

Regulation 4 provides that Schedule 1 amends the Banking Regulations 1966.

Item [1] inserts subregulations 20(12)-(13), which specify security, set-off and escrow accounts. Subregulation 20(12) defines these accounts. Subregulation 20(13) provides that funds held in these accounts will become unclaimed if no deposits and no withdrawals are made for a period of at least seven years.

Examples of the Application of the Banking Amendment Regulation 2013 (No. 1)

Example 1: A small business holds an account with Bank XYZ containing $10,000. To fund an expansion of its operations, the small business takes out a loan with Finance Company A to be repaid over four years. Under the loan agreement with Finance Company A, the small business agrees to maintain $10,000 in the account as part security for the loan. At the small business owner's request, Bank XYZ does not allow deposits or withdrawals on the account until notified otherwise by the owner. The $10,000 in the account will only become unclaimed monies if no deposit or withdrawal is made for a period of at least seven years.

Example 2: Person A holds an account with Bank XYZ containing $15,000. Person A enters into a contract with a building company to undertake some house renovations. As part of the renovation contract, Person A agrees to maintain $15,000 in the account until completion of the renovations. At Person A's request, Bank XYZ does not allow any further deposits or withdrawals on the account until notified otherwise by Person A. The $15,000 in the account will only become unclaimed monies if no deposit or withdrawal is made for a period of at least seven years.

Example 3: A small business holds an account with Bank XYZ containing $12,000. To fund an expansion of its operations, the small business takes out a loan with Finance Company A to be repaid over four years. Under the loan agreement with Finance Company A, the small business agrees to maintain $12,000 in the account as part security for the loan. However, the small business does not request that Bank XYZ not allow deposits or withdrawals on the account. The $12,000 in the account will become unclaimed monies if no deposit or withdrawal is made for a period of at least three years.

Example 4: An owner of a rental property holds an account with Bank XYZ containing $14,000. The owner enters into a contract with a building company to undertake some renovations to the rental property. As part of the renovation contract, Person A agrees to maintain $14,000 in the account until completion of the renovations. The owner then requests Bank XYZ not to allow any further deposits or withdrawals on the account, but Bank XYZ does not restrict activity on the account. The $14,000 in the account will become unclaimed monies if no deposit or withdrawal is made for a period of at least three years.

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Banking Amendment Regulation 2013 (No. 1)

This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Legislative Instrument

Subsection 69(1B) of the Banking Act 1959 (Banking Act) allows regulations to set specific conditions for certain accounts to be assessed as unclaimed moneys. The Regulation will set the specific conditions for accounts which are held as security for financial obligations, accounts which are held as set-off for financial obligations and funds in accounts which are held in escrow in relation to a contract.

Human rights implications

This Legislative Instrument does not engage any of the applicable rights or freedoms.

Conclusion

This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.

Commonwealth Numbered Regulations - Explanatory Statements

Issued by the Authority of the Deputy Prime Minister and Treasurer