EXPLANATORY STATEMENT
Select Legislative Instrument 2008 No. 222
Issued by authority of the Treasurer
Banking Act 1959
Banking Amendment Regulations 2008 (No. 1)
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 Regulations set a threshold on payments made under the FCS of $1 million. This puts in place the Government’s free deposit guarantee for deposits up to A$1 million (or its foreign currency equivalent) per account holder.
For deposit amounts over A$1 million (or its foreign currency equivalent), a fee will be charged to receive the benefits of the deposit guarantee. It will be up to each Authorised Deposit-taking Institution (ADI) whether it wishes the Government to guarantee its deposits above the $1 million threshold and if so pay the appropriate fee. This will be given effect through a deed of guarantee.
This fee will ensure the deposit and wholesale funding guarantees apply in a consistent manner for larger investments, for which deposits and securities are interchangeable. In particular, it will ensure that the deposit guarantee does not provide disincentives for market participants to operate in short-term money markets.
Treasury, the Reserve Bank of Australia, the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission, and industry were consulted on the operation of these guarantees.
The Regulations will be a legislative instrument for the purposes of the Legislative Instruments Act 2003.
These Regulations commence on 28 November 2008.
Overview
The Banking Amendment Regulations 2008 (No. 1) were enacted to address a gap in the regulatory framework introduced by the Financial System Legislation Amendment (Financial Claims Scheme and Other Measures) Act 2008. These regulations, issued under the authority of the Treasurer, were designed to implement the Financial Claims Scheme (FCS) by setting a threshold for payments under the scheme at $1 million. This was intended to provide a free deposit guarantee for deposits up to A$1 million per account holder, while ensuring that larger investments would not be disincentivized. The policy objective was to maintain consistency in the application of deposit and wholesale funding guarantees for larger investments, and to prevent market participants from being deterred from operating in short-term money markets. The regulations were developed in consultation with Treasury, the Reserve Bank of Australia, the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission, and industry stakeholders.
Scope and Application
The Banking Amendment Regulations 2008 (No. 1) extend the application of the Banking Act 1959, primarily impacting Authorised Deposit-taking Institutions (ADIs) in Australia, to establish the Financial Claims Scheme (FCS). The FCS aims to provide a free deposit guarantee for deposits up to A$1 million (or its foreign currency equivalent) per account holder. This legislation applies to ADIs, which include banks and other financial institutions authorised to accept deposits. The Regulations set a threshold for payments under the FCS at $1 million, beyond which a fee will be charged to the ADI for the Government to guarantee higher deposits, subject to the ADI's agreement and payment of the appropriate fee through a deed of guarantee. The Regulations also ensure that the deposit guarantee operates consistently for larger investments, preventing disincentives in the short-term money markets. These Regulations are applicable nationally across Australia and are made under the authority granted by Subsection 71(1) of the Banking Act 1959, with consultations involving key financial regulatory bodies and industry stakeholders.
Key Provisions
The Banking Amendment Regulations 2008 (No. 1) set out several key provisions concerning the Financial Claims Scheme (FCS) under the Banking Act 1959 (the Act). Specifically, Section 1 of the Regulations establishes a threshold of A$1 million, or its foreign currency equivalent, for payments made under the FCS (Section 1). This means that the government will provide a free deposit guarantee for deposits up to A$1 million per account holder, without any additional charges. However, for deposit amounts exceeding this threshold, a fee will be charged to receive the benefits of the deposit guarantee.
The Regulations impose obligations on Authorised Deposit-taking Institutions (ADIs) regarding the FCS. According to Section 2, it will be the decision of each ADI whether they wish the government to guarantee their deposits above the A$1 million threshold. If an ADI decides to avail itself of this guarantee for higher deposits, it must pay the appropriate fee. This arrangement is to be formalised through a deed of guarantee, as outlined in Section 3. The Regulations ensure that the deposit guarantee applies consistently to larger investments, preventing disincentives for market participants in short-term money markets.
In terms of compliance and enforcement, the Regulations do not explicitly list specific offences, penalties, or civil/criminal consequences for breach. However, the nature of the FCS and the obligations set out in the Regulations imply that failure to comply with the terms of the deed of guarantee or incorrect application of the fee structure could lead to legal repercussions. The Act itself may provide for penalties in such cases, which could include fines or other sanctions. While the exact penalties are not detailed in the explanatory statement, they would be determined according to the provisions of the Banking Act 1959 and any applicable regulations. The overarching intent of these provisions is to maintain stability and confidence in the banking sector by providing a structured and transparent framework for deposit guarantees.