EXPLANATORY STATEMENT

Select Legislative Instrument No. 138, 2014

Issued by authority of the Treasurer

Banking Act 1959

Banking Amendment (Financial Claims Scheme) Regulation 2014

Section 71 of the Banking Act 1959 (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 Financial Claims Scheme (FCS), which is administered by the Australian Prudential Regulation Authority (APRA), provides depositors in authorised deposit‑taking institutions (ADIs) with protection up to the limit of the scheme
($250,000 per account-holder per ADI, in relation to certain accounts) in the case of the FCS being declared by the Minister.  This is either the Treasurer, or a minister assigned the relevant responsibilities under the Act.

Accounts that are covered by the FCS in the case of an FCS declaration are referred to as ‘protected accounts’.  Section 5, paragraph (4)(a) and subsection (7) of the Act allow for ‘protected accounts’ and not ‘protected accounts’ to be prescribed by regulations.  The purpose of this Regulation therefore is to amend the Banking Regulations 1966 (Regulations) to provide certainty in regards to what are ‘protected accounts’, and what are not ‘protected accounts’ under the FCS.

It restates the accounts covered in the Treasurer’s 27 October 2008 Declaration of Covered Financial Products, and also formally excludes foreign branches of Australian ADIs from FCS coverage.  This change is in line with the Treasurer’s 11 September 2011 announcement, and was recommended by the Council of Financial Regulators.  It will better target the FCS at Australian retail depositors.

This amendment to the Banking Regulations 1966 states that the following kinds of accounts are ‘protected accounts’ under the FCS:

•                 savings accounts;

•                 at call accounts (for example, accounts that can be accessed at any time);

•                 cash management accounts;

•                 cheque accounts;

•                 current accounts;

•                 debit card accounts;

•                 farm management deposit accounts (as defined by section 393-20 of the Income Tax Assessment Act 1997);

•                 first home saver accounts (as defined by section 8 of the First Home Saver Accounts Act 2008);

•                 mortgage offset accounts (whether a full or partial offset) that are separate deposit accounts;

•                 pensioner deeming accounts (accounts for retirees aged 55 or over, or consumers with concession cards receiving a Government pension);

•                 personal basic accounts;

•                 retirement savings accounts (as defined by section 8 of the Retirement Savings Accounts Act 1997);

•                 term deposit accounts;

•                 transactions accounts; and

•                 trustee accounts.

The following kinds of accounts are not ‘protected accounts’ under the FCS:

•                 accounts kept at a foreign branch of an ADI;

•                 accounts with a specialist credit card institution (SCCI) (with a SCCI defined as an ADI that engages in credit card issuing, credit card acquiring, or both; and does not otherwise carry on a banking business);

•                 credit balances on credit card facilities or other loans (for example, a credit card balance that the account-holder has overpaid and is in credit in favour of the account-holder);

•                 purchased payment facilities;

•                 pre-paid card facilities or similar products; and

•                 nostro accounts and vostro accounts of foreign corporations that carry on banking business or otherwise provide financial services in a foreign country.

It is the definition of an account that is important for determining FCS coverage, not its purpose. That is, whether or not an account is protected does not depend on what the account is used for, rather it depends on it having the legal features of a ‘protected account’.

The banking sector has been consulted on the proposed Regulation through targeted communication by the Department of Treasury.  The banking sector supports the registration of this Regulation.

The Office of Best Practice Regulation has previously advised that a Regulatory Impact Statement is not required as the changes do not have a regulatory impact on business or the not-for-profit sector.

The Regulation will commence on the day after it is registered.

A statement of compatibility with human rights for the purposes of Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 is set out in Attachment A.

The Banking Act 1959 does not specify any conditions that need to be satisfied before the power to make the Regulation may be exercised.

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

Attachment A

Statement of Compatibility with Human Rights

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

Banking Amendment (Financial Claims Scheme) Regulation 2014

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

The purpose of this Regulation is to amend the Banking Regulations 1966
(Regulations) to clarify what are ‘protected accounts’, and what are not ‘protected accounts’ under the Financial Claims Scheme.

Section 71 of the Banking Act 1959 (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.

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.