TMeffect Pty Limited and Australian Prudential Regulation Authority

[2019] AATA 459

TMeffect Pty Limited and Australian Prudential Regulation Authority [2019] AATA 459 (21 March 2019)

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2016/3643

Re:TMeffect Pty Limited

APPLICANT

AndAustralian Prudential Regulation Authority

RESPONDENT

DECISION

Tribunal:Deputy President I R Molloy

Date:21 March 2019

Place:Sydney

The decision under review is affirmed.

...........................[SGD]........ .....................................

Deputy President I R Molloy

CATCHWORDS

CORPORATIONS – prudential regulation – use of restricted word in relation to a financial business – whether consent should be granted to allow applicant to use restricted word in relation to financial business – equity crowd-funding business – protection of the public from being misled – whether exceptional circumstances – decision affirmed

LEGISLATION

Banking Act 1959 (Cth) ss 11, 51B, 51C, 66

Corporations Act 2001 (Cth) s 738ZA

CASES

APRA v TMeffect Pty Ltd [2018] FCA 508

Siminton v APRA (2008) 168 FCR 122

SECONDARY MATERIALS

APRA Guidelines: Restricted Words under the Banking Act 1959 (20 August 2018)

APRA Guidelines: Implementation of section 66 of the Banking Act 1959 (August 2015)

Corporations Regulations 2001 (Cth) r 6D.3A.03

REASONS FOR DECISION

Deputy President I R Molloy

21 March 2019

1. This is an application to review a decision of a delegate of the respondent (APRA) dated 13 May 2016 refusing consent under s 66 of the Banking Act 1959 (Cth) (the Banking Act) for the applicant to assume or use the word bank in relation to an equity crowd-funding business that it wishes to name “Bankrolla Pty Limited” (Bankrolla).

2. The application comes before me on remittal from the Federal Court following a successful appeal by APRA against an earlier decision of the Tribunal in favour of the applicant.  This hearing is based on the evidence before the Tribunal on the previous hearing and on further evidence adduced by each of the parties.

3. APRA is the prudential regulator of the Australian financial services industry with functions and powers inter alia under the Banking Act. Under s 9(3) of the Banking Act APRA may grant an entity authority to carry on banking business in Australia. An entity with such authority is an Authorised Deposit-taking Institution (or ADI). It is an offence for an entity to conduct banking business in Australia unless it is an ADI.

4. Under s 66 of the Banking Act, and with certain exceptions, it is an offence to assume or use a restricted word or expression in relation to a financial business. Under sub-section (4)(a)(i) the restricted words or expressions in s 66 of the Banking Act include “bank”, “banker” and “banking”.

5. Under s 66(4)(b) of the Banking Act a reference to a restricted word or expression being assumed or used includes being assumed or used as part of another word or expression or in combination with other words, letters, or symbols.

6. There is an exception relevantly in respect of the use of restricted words or expressions in relation to an ADI’s financial business. Another exception exists where, under s 11 of the Banking Act, APRA has exercised its power to determine that s 66 does not apply to a person. There are also other limited exceptions which it is unnecessary for me to specify.

7. The applicant is carrying on, or is proposing to carry on, a financial business within Australia, within the meaning of s 66(1)(a) of the Banking Act. Broadly-speaking, the business it seeks to operate is crowd-funding.

8. The applicant is not an ADI and a determination has not been made in its favour under s 11 of the Banking Act. It does not fall within any of the other limited exceptions to s 66 of the Banking Act which exist. Consequently the applicant may only use the restricted word bank if it obtains the consent under s 66 of the Banking Act previously refused by APRA’s delegate.

9. I should mention that since that decision was made there have been amendments to the Banking Act with the effect that, generally-speaking, a decision by APRA to refuse consent under s 66 is no longer reviewable by the Tribunal. It is accepted, however, that by virtue of s 51C(1) of the Banking Act, and because the delegate’s decision was confirmed under s 51B(3), the amendment does not have any impact in respect of the decision the subject of this application.

10. Whilst on the point of jurisdiction, I should mention that the reviewable decision was reconsidered and confirmed by an APRA delegate on 21 June 2016. The applicant, perhaps unsurprisingly, applied to the Tribunal for review of the “reconsideration decision”, whereas the reviewable decision is the original decision made on 13 May 2016. No point is taken concerning this.

11. Returning to the substantive issue, the purpose of s 66 of the Banking Act is the protection of the public against confusion: Siminton v APRA (2008) 168 FCR 122, [26]; and APRA v TMeffect Pty Ltd [2018] FCA 508, [21]. Relevantly, under the Banking Act, the prohibition on the use of the word bank in relation to a financial business is limited and controlled so as to avoid the public being misled.

12. The Federal Court in APRA v TMeffect, at [25], accepted APRA’s submission that the task of the decision-maker, in deciding whether to grant consent under s 66 of the Banking Act, is not to ask whether the public would be protected if use of the name were permitted. The starting point is the general statutory prohibition on the use of the word bank, and then to identify those factors warranting departure from the general rule.

13. In that case, at [25], the Federal Court observed that s 66 does not expressly impose any general requirement that consent be granted only in exceptional cases for non-ADIs. Nonetheless, the Court concluded, at [39], that this was the legislative intent. That is to say, under the Banking Act, an exceptional case must exist justifying the grant of consent.

14. APRA have published guidelines relating inter alia to s 66 and the use of restricted words or expressions. The guidelines at the time of the previous hearing were dated August 2015 (the 2015 Guidelines). The current guidelines, entitled Guidelines: Restricted Words under the Banking Act 1959, are dated 20 August 2018 (the 2018 Guidelines). The 2018 version is applicable in respect of this decision.

15. I do not think there is any significant difference between the two versions of the guidelines. The 2015 Guidelines emphasised that consent to use of restricted words in relation to a financial business other than ADIs or like-regulated institutions requires exceptional circumstances. The 2018 Guidelines state:

    In determining whether to grant approval, APRA will consider the particulars of the application and the policy intent of the restriction: to limit the use of restricted words and expressions by financial businesses that are not ADIs to very rare and unusual circumstances. Consequently, APRA very rarely grants approval for a financial business that is not an ADI to use a restricted word or expression.

16. I agree with APRA’s submission that there is no relevant difference between “exceptional circumstances” and “very rare and unusual circumstances”. Moreover, as the Federal Court said in APRA v TMeffect Pty Ltd (supra), at [59], the guidelines are not a statute; they are simply guidelines. The 2018 Guidelines, the same as the 2015 Guidelines, give expression to what the Court said is implicit in the Banking Act. I have taken the guidelines into account.

17. I am not satisfied this is an exceptional case justifying the granting of consent. On the contrary, this seems to be just the type of case which the legislature might have contemplated when it imposed the prohibition on the use of the word bank under s 66.

18. The applicant operates, or intends to operate, as a crowd-sourced funding intermediary, and make available funding sources for businesses, subject to the provisions of the Corporations Act 2001 (Cth) (the Corporations Act) dealing with crowd-sourcing. Crowd-funding is inherently risky for investors who provide money to the crowd-funding business with the hope or expectation of a return.

19. As APRA points out, the use of the word bank in the name Bankrolla is suggestive of bank-like activities. The potential for confusion is not ameliorated by the applicant’s description of its activities, such as “providing funding”, “matching investors to start-ups”, acting “as intermediary to the offer and acceptance of shares, receipting money (via Westpac escrow)”, and describing “the anticipated repayment to a bankroller in the form of profit will typically be many times the upfront investment…and always well above that of the prevailing rates, all necessitated by the added risk in bankrolling”.

20. The applicant relies on numerous matters which it claims are exceptional circumstances favouring the granting of consent. Many of them seem to me to be irrelevant. I am not satisfied that any of them, or any combination of them, provides exceptional circumstances for granting the consent.

21. Amongst other things the applicant pointed out that the name Bankrolla was descriptive of the nature of the transactions in which the applicant acted as an intermediary. It described the name Bankrolla as a lexeme, meaning that its separate elements, bank and rolla, do not separately convey the meaning of the whole.

22. The applicant referred to what it contended were exceptional circumstances which had arisen since the previous Tribunal hearing. These included its principal, Matthew Pinter, having completed a diploma of financial licensing management through the Australian Financial Management Association, and the applicant establishing a “statutory” trust account with Westpac (annually audited and ongoing).

23. Other new facts or circumstances were also referred to, generally going to various forms of risk management or the applicant’s compliance with various forms of regulation. None seems out of the ordinary for a business providing financial services. They do not constitute any evidence of exceptional circumstances for the purposes of this application.

24. The applicant points out that its business can only be reached via its website. It relied on Scott Sunderland, presented as having relevant expertise, who said that a person looking for a bank online would not find the Bankrolla equity crowd-funding website. It was also pointed out that the name Bankrolla had been used between the date of the first Tribunal decision and the decision on appeal; that there had been 6,645 visitors to its site, and 13,617 views. None of that makes this an exceptional case.

25. The applicant has provided an example of “what the brand Bankrolla looks like” (Exhibit 5). These are screen-shots from its web-site, again presumably between the date of the original Tribunal decision and the Federal Court decision. In the first of these screen-shots the most prominent word is Bankrolla, followed by “Transaction Processing … Thank you James, we are now processing your payment”. And the next most prominent word on the page is “Receipt”. The screen-shot also includes two silhouettes, each indicating a man wearing a dark suit and tie.

26. My overall impression of the page was that it would not be out of place in relation to a banking business. The evidence does not support the claim that this is an exceptional case justifying consent. The applicant did also point out that crowd-funding is closely regulated. There is, for example, a risk-warning prescribed under the Corporations Act, s 738ZA, and also under the Corporations Regulations 2001 (Cth), r 6D.3A.03.

27. I have considered all that the applicant has had to say. I find it unnecessary to refer specifically to every one of its arguments. The applicant has said, I think, everything that could possibly be said in support of its application.

28. Unfortunately for the applicant, however, I am not satisfied that this is an exceptional case justifying the granting of consent under s 66 of the Banking Act to the use of the restricted word bank in the word Bankrolla in relation to its financial business.

29. As a result the reviewable decision is affirmed.

I certify that the preceding 29 (twenty -nine) paragraphs are a true copy of the reasons for the decision herein of Deputy President I R Molloy

.........................[SGD]...............................................

Associate

Dated: 21 March 2019

Date(s) of hearing:	4 March 2019
Applicant:	In person
Counsel for the Respondent:	Brendan Lim
Solicitors for the Respondent:	J Leith, Australian Prudential Regulation Authority