Banking Amendment Regulations 2003 (No. 1) 2003 No. 185
EXPLANATORY STATEMENT
Statutory Rules 2003 No. 185
Issued by the Treasurer
Banking Act 1959
Banking Amendment Regulations 2003 (No. 1)
Subsection 71(1) of the Banking Act 1959 (the Act) provides that the Governor-General may make regulations, not inconsistent with the Act, prescribing all matters which by the Act are required or permitted to be prescribed, or which are necessary or convenient to be prescribed for carrying out or giving effect to the Act.
Subsection 71(2) of the Act provides, in part, that the regulations may confer functions on the Australian Prudential Regulation Authority (APRA) regarding supervision of Authorised Deposit-taking Institutions (ADIs) in relation to prudential matters.
Subsection 71(3) provides that the Governor-General shall not make regulations for ADIs in relation to prudential matters except in accordance with the recommendation of the Treasurer. Subsection 71(4) requires that before making a recommendation, the Treasurer must consult with APRA.
The Act provides for the regulation of banking activity in Australia. Section 5 of the Act defines "banking business". The Act specifies that only the Reserve Bank of Australia (RBA) and ADIs are eligible to carry out "banking business". It also states how the regulators, APRA and the RBA, are to carry out the task of supervising ADIs.
As part of the RBA's reform of credit card schemes, the RBA would like to open the Australian-based credit card schemes to more competition. The RBA wishes to increase the number of participants in these schemes without increasing the systemic risk to these schemes. Both of these objectives can be achieved by expanding the definition of "banking business" to include credit card services.
If "banking business" includes credit card services then credit card providers will be subject to prudential supervision. If credit card providers are subject to prudential regulation, then APRA can release standards that will specify how a class of ADIs, composed of ADIs that provide credit card services, may operate. Section 11AF of the Act allows APRA to make standards in relation to prudential matters to be complied with by ADIs or a class of ADIs.
APRA intends to authorise and supervise a new class of ADIs specifically providing credit card services. These ADIs will be known as specialist credit card institutions (SCCIs). SCCIs will not be able to accept deposits, but will be able to offer credit card services. SCCIs will be able to apply to offer credit card services only with the schemes of Visa, MasterCard and Bankcard.
The purpose of the proposed regulations is to expand the definition of "banking business" to include the activities of credit card acquiring and issuing, which the proposed regulations would define. Credit card acquiring and credit card issuing are the main activities of credit card providers. The effect of expanding the definition of banking business would be to make credit card acquiring and credit card issuing, by SCCIs, subject to prudential supervision.
Details of the Regulations are set out in the Attachment.
The Office of Regulation Review has advised that no Regulation Impact Statement is required in relation to the Regulations as one was prepared for the package of reforms in relation to credit cards released by the RBA on 27 August 2002.
The regulations commenced on 23 July 2003.
ATTACHMENT
Summary of Regulations: Banking Amendment Regulations 2003 (No. 1)
Regulation 1: The title of the regulations is the Banking Amendment Regulations 2003 (No. 1)
Regulation 2: The regulations commenced on 23 July 2003.
Schedule 1
Item [1]: The regulation adds definitions relevant to credit card acquiring and credit card issuing and to the expanded definition of "banking business". The item includes new definitions for constitutional corporation, credit card issuing, credit card acquiring, credit card transaction, holder of stored value, merchant, participant and payment system.
Item [2]: This regulation limits the application of the expanded definition of "banking business" under section 5 of the Banking Act 1959. The activities of credit card acquiring and credit card issuing are only considered to be "banking business" if carried out by members of credit card schemes that were designated by the Reserve Bank of Australia, under section 11 of the Payment Systems (Regulation) Act 1998, on 11 April 2001.
Overview
The Banking Amendment Regulations 2003 (No. 1), enacted in 2003, were introduced to address the need to enhance competition and improve regulation in the credit card sector within the Australian banking industry. This legislative initiative was brought forth by the Treasurer and endorsed by the Parliament, with the primary policy objective being to expand the definition of "banking business" to include credit card services, thereby subjecting credit card providers to prudential supervision. By amending the Banking Act 1959, these regulations aimed to incorporate credit card activities into the regulatory framework, facilitating the establishment of specialist credit card institutions (SCCIs) that would operate under the oversight of the Australian Prudential Regulation Authority (APRA). This expansion sought to ensure that credit card services were provided in a manner that mitigated systemic risks while fostering a more competitive market environment.
Scope and Application
The Banking Amendment Regulations 2003 (No. 1) serve to augment the scope of the Banking Act 1959 by expanding the definition of "banking business" to include credit card acquiring and issuing activities. These regulations apply to entities that are classified as specialist credit card institutions (SCCIs), which are distinct from traditional Authorised Deposit-taking Institutions (ADIs) as they do not accept deposits but exclusively offer credit card services. The regulations came into effect on 23 July 2003, and their geographic reach is national, applying throughout Australia. By incorporating credit card services under the umbrella of "banking business", the regulations ensure that SCCIs are subject to prudential supervision by the Australian Prudential Regulation Authority (APRA), thereby enhancing the systemic stability of credit card schemes. The inclusion of credit card services within the definition of banking business is specifically limited to those SCCIs that are members of credit card schemes designated by the Reserve Bank of Australia under the Payment Systems (Regulation) Act 1998.
Key Provisions
The main operative sections of the Banking Amendment Regulations 2003 (No. 1) (the Regulations) are found in Schedule 1, which expands the definition of "banking business" under the Banking Act 1959 (the Act). Specifically, Item [1] of Schedule 1 adds definitions relevant to credit card acquiring and issuing, while Item [2] limits the application of the expanded definition of "banking business" to activities carried out by members of credit card schemes designated by the Reserve Bank of Australia (RBA) under section 11 of the Payment Systems (Regulation) Act 1998 on 11 April 2001. These changes effectively bring credit card acquiring and issuing under the scope of prudential supervision by the Australian Prudential Regulation Authority (APRA).
The Regulations impose obligations on entities involved in credit card acquiring and issuing, particularly on those entities seeking to become specialist credit card institutions (SCCIs). These entities must comply with the expanded definition of "banking business" and adhere to the prudential standards set by APRA. SCCIs, as a new class of authorised deposit-taking institutions (ADIs), will be subject to APRA's authorisation and supervision, although they will not be able to accept deposits. Instead, they will focus on offering credit card services through approved credit card schemes, namely Visa, MasterCard, and Bankcard.
Failure to comply with the Regulations may result in various consequences. APRA has the authority to take enforcement actions against SCCIs and other entities subject to the Regulations if they do not comply with the prudential standards or other regulatory requirements. The Act provides for both civil and criminal penalties for non-compliance. Civil penalties can include fines up to a maximum of $504,000 for individuals and $2,520,000 for bodies corporate, as per the relevant provisions of the Act. Criminal penalties may also apply, depending on the nature and severity of the breach. Additionally, the Act allows for the imposition of administrative penalties and the revocation of authorisations, which can significantly impact the operations of entities that fail to comply with the Regulations.
In summary, the Banking Amendment Regulations 2003 (No. 1) expand the definition of "banking business" to include credit card acquiring and issuing, thereby subjecting these activities to prudential supervision by APRA. This change aims to enhance competition in the credit card sector while mitigating systemic risk. The Regulations impose specific obligations on SCCIs and other entities involved in credit card services, with potential civil and criminal penalties for non-compliance, as stipulated under the Banking Act 1959.