EXPLANATORY STATEMENT
Select Legislative Instrument No. 224
Issued by authority of the Deputy Prime Minister and Treasurer
Banking Act 1959
Banking Amendment Regulations 2011 (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 contains the provisions for the Financial Claims Scheme (FCS). The FCS is Australia’s deposit protection scheme and provides depositors in Australian-incorporated authorised deposit-taking institutions (ADIs) with a guarantee of their deposits to a threshold prescribed by regulations. The primary function of the FCS is to protect Australian retail depositors and provides depositors with faster access to their funds than would be possible through the liquidation process.
Section 16AG of the Act permits regulations to be made to put a limit on the FCS, and for different limits to apply to different types of depositors.
The FCS was introduced in October 2008, at the height of the global financial crisis. A $1 million limit was set to give Australian depositors certainty over the safety of their money. When the Government introduced the FCS, it made a commitment to review the cap in three years’ time.
The Regulations set a new limit under the FCS of $250,000 per depositor, per ADI to be effective from 1 February 2012.
The Regulations also provide a grandfathering period for term deposits, to smooth the transition to the revised FCS limit. Term depositors, who have entered into a term deposit before 11 September 2011, would be covered until 31 December 2012, or until the expiry of the term deposit, whichever is sooner.
Treasury has consulted with APRA, ASIC and the RBA over the course of 2010 and 2011 in formulating these proposals. The Government released a public consultation paper on 27 May 2011 seeking input on the proposed changes to the FCS, and submissions closed on 24 June 2011. The draft Regulations were then the subject of targeted consultation with the Australian Bankers’ Association and Abacus – Australian Mutuals in September 2011.
Details of these Regulations are set out in the Attachment.
The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.
The Regulations commence on the day after they are registered.
ATTACHMENT
Details of the proposed Banking Amendment Regulations 2011 (No. 1)
Regulation 1 specifies the name of the Regulations as the Banking Amendment Regulations 2011 (No. 1).
Regulation 2 provides that the Regulations will commence on the day after they are registered.
Regulation 3 provides that Schedule 1 amends the Banking Regulations 1966.
Schedule 1
Item [1] inserts a definition of limit as the amount worked out under subregulation 5 (1) of the proposed Regulations.
Item [2] inserts definitions for the two different categories of protected accounts during the transitional period which runs from 1 February 2012 to 31 December 2012. Total category 1 deposits are defined as the amount worked out under subregulation 5 (2) of the proposed Regulations. Total category 2 deposits are defined as the amount worked out under subregulation 5 (3) of the proposed Regulations.
Item [3] inserts a table which allows account-holders during the transitional period to work out whether their protected accounts are characterised as category 1 deposits or category 2 deposits.
Category 1 deposits are:
- before 1 February 2012, any amounts held in any protected account; and
- on or after 1 February 2012, term deposits entered into before 11 September 2011 that have not matured or rolled over.
Category 2 deposits are:
3. on or after 1 February 2012, term deposits which existed before 11 September 2011 that have matured or rolled over on or after 11 September 2011;
4. on or after 1 February 2012, term deposits that came into existence after 11 September 2011; and
5. on or after 1 February 2012, any other amount held in a protected account.
Item [4] substitutes regulation 5.
Regulation 5 Financial claims scheme – limit on payments
Subregulation 5(1) provides the following steps for calculating an account-holder’s FCS coverage limit during the transitional period:
Step 1 Add together the total category 1 deposits and total category 2 deposits.
Step 2 If the result worked out in Step 1 is not greater than $1 million, then the result is the account-holder’s FCS coverage limit.
Step 3 If the result worked out in Step 1 is greater than $1 million, then the effect of Step 3 is to make the limit $1 million.
Subregulation 5(2) provides that the total category 1 deposits are found by adding together the amounts held by the account-holder in category 1 deposits.
Subregulation 5(3) provides the following steps for working out category 2 deposits:
Step 1 Add together the amounts held by the account-holder in category 2 deposits.
Step 2 If the amount worked out in Step 1 is not greater than $250,000, then this is the total category 2 deposits for the account-holder.
Step 3 If the amount worked out in Step 1 is greater than $250,000, then the effect of Step 3 is to make the total category 2 deposits $250,000.
Subregulation 5(4) provides that once the transitional period ceases, the permanent FCS coverage limit on or after 1 January 2013 is $250,000 per account-holder, per authorised deposit-taking institution.