EXPLANATORY STATEMENT
Select Legislative Instrument 2010 No. 233
Issued by the authority of the Treasurer
Banking Act 1959
Banking Amendment Regulations 2010 (No. 2)
Subsection 71(1) of the Banking Act 1959 (the Act) provides, in part, 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.
The Banking Amendment Regulations 2010 (No. 1) clarified the meaning of ‘external support’ for the purposes of paragraph 13A(1)(b) of the Act. In particular, it clarified the term does not include support provided in the normal course of business.
At the time the Banking Amendment Regulations 2010 (No. 1) were made section 13A was the only section in the Act that used the term ‘external support’. However, the enactment of the Financial Sector Legislation Amendment (Prudential Refinements and Other Measures) Act 2010 (the FSLA Act) inserts the term into two additional sections.
First, the FSLA Act amends section 11CA of the Act to clarify that the Australian Prudential Regulation Authority (APRA) may disregard any external support for an ADI in deciding whether to give a direction under that section. Second, the FSLA Act inserts new section 13E that enables APRA to disregard any external support for an ADI in determining whether certain grounds for issuing a recapitalisation direction under that section are met.
In both cases, the amendments provide that the regulations may specify that a particular form of support is not external support for their purposes.
The Regulations amend the Banking Regulations 1966 to ensure that a form of support that is entered into in the normal course of business is not considered to be external support for the purposes of the amendments. By doing so the Regulations ensure that the term ‘external support’ has consistent meaning throughout the Act.
Examples of external support entered into in the normal course of business could include parent and shareholder support. Examples of support not entered into in the normal course of business could include arrangements such as industry support contracts certified under section 11CB of the Act, or support from the Government, such as the provision of a guarantee over an ADI’s obligations, an indemnity over risks on an ADI’s balance sheet, or an undertaking to provide capital support.
The Australian Bankers Association was consulted in the preparation of the Regulations.
The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.
The Regulations commence on the commencement of items 1 to 25 of Schedule 1 of the FSLA Act on 27 July 2010.
Overview
The Banking Amendment Regulations 2010 (No. 2) were introduced to address a specific gap identified in the Banking Act 1959, which was subsequently amended by the Financial Sector Legislation Amendment (Prudential Refinements and Other Measures) Act 2010. This legislative instrument was enacted to clarify the meaning of the term ‘external support’ in the context of banking regulation, ensuring consistency across relevant provisions. The Banking Amendment Regulations 2010 (No. 2) were made under the authority of the Treasurer and aim to ensure that support provided in the normal course of business does not constitute 'external support', thereby aligning with the policy objective of maintaining the integrity of banking operations and regulatory oversight. These regulations were issued to provide a cohesive interpretation of ‘external support’ throughout the Banking Act, thereby facilitating effective regulation by the Australian Prudential Regulation Authority (APRA).
Scope and Application
The Banking Amendment Regulations 2010 (No. 2) pertain to the Banking Act 1959 and are designed to provide clarity on the term "external support" within the context of the Act, ensuring consistency and proper application across various provisions of the legislation. These regulations apply to authorised deposit-taking institutions (ADIs) and other entities subject to the Act, particularly in relation to their interactions with the Australian Prudential Regulation Authority (APRA). The term "external support" is now defined to exclude any support provided in the normal course of business, thereby distinguishing between routine business activities and exceptional support arrangements that could potentially influence prudential decisions. The scope of these regulations is national, extending to all ADIs operating within Australia. Any form of support that is entered into in the normal course of business will not be considered "external support," thereby excluding typical parent and shareholder support from this definition. Conversely, support not entered into in the normal course of business, such as industry support contracts or government guarantees, will be considered "external support." These regulations aim to refine and clarify the application of the Act, ensuring that APRA has the necessary tools to make informed decisions regarding the prudential stability of ADIs.
Key Provisions
The main operative sections of the Banking Amendment Regulations 2010 (No. 2) address the clarification of the term ‘external support’ under the Banking Act 1959. Specifically, Regulation 1 amends the Banking Regulations 1966 to ensure that any support entered into in the normal course of business does not qualify as ‘external support’ for the purposes of the amendments introduced by the Financial Sector Legislation Amendment (Prudential Refinements and Other Measures) Act 2010. This change ensures a consistent interpretation of the term ‘external support’ across the Act. The regulation specifies that parent and shareholder support, which is provided in the normal course of business, should not be considered external support. Conversely, support arrangements such as industry support contracts certified under section 11CB of the Act or government-provided guarantees, indemnities, or capital support undertakings, which are not part of the normal business operations, would be classified as external support.
The obligations and requirements imposed by these regulations primarily focus on the Australian Prudential Regulation Authority (APRA) and authorised deposit-taking institutions (ADIs). APRA must disregard any external support for an ADI when deciding whether to issue a direction under section 11CA or when determining whether certain grounds for issuing a recapitalisation direction under section 13E are met. These obligations necessitate that APRA and ADIs differentiate between support provided in the normal course of business and that which is not, to ensure compliance with the Act. This also requires APRA to make informed decisions based on a clear understanding of what constitutes external support, as delineated by the regulations.
Any breach of the provisions within the Banking Amendment Regulations 2010 (No. 2) could lead to various civil or criminal consequences, although specific penalties are not detailed in the explanatory statement. However, under the broader framework of the Banking Act 1959 and associated regulations, breaches of financial regulations can result in substantial penalties. For instance, non-compliance with APRA’s directions or misleading or deceptive conduct can attract significant fines and, in severe cases, criminal charges. The maximum penalties can vary depending on the nature and severity of the breach, but they could include fines of up to $1.8 million for corporations and imprisonment terms for individuals, as stipulated under the various sections of the Banking Act 1959 and the Corporations Act 2001. These provisions underscore the importance of adherence to the regulatory requirements set forth by APRA and the legislative framework governing ADIs.