Banking (prudential standard) determination No. 10 of 2011

EXPLANATORY STATEMENT

Prepared by the Australian Prudential Regulation Authority

Banking Act 1959, section 11AF

1. Background

APRA may, in writing, determine a prudential standard that applies to authorised deposit-taking institutions (ADIs) under subsection 11AF(1) of the Banking Act 1959 (Banking Act).

2.                   Purpose of the instrument

The purpose of Banking (prudential standard) determination No. 10 of 2011 (the instrument) is to make a new prudential standard that sets out requirements ADIs must meet in order to ensure the effective operation of the Financial Claims Scheme (FCS), which came into effect with amendments to the Banking Act in October 2008.

Commonwealth legislation was enacted on 17 October 2008 to implement the FCS. The FCS is designed to protect account-holders of an insolvent ADI from loss on their deposits, and to provide them with timely access to those deposits, up to the maximum amount payable under the FCS. APRA is responsible for the administration of the FCS. In order to ensure the FCS operates as intended it is necessary to set out the APRA requirements that industry must meet in order to give effect to the FCS. The instrument does this by requiring an ADI to put in place systems for the identification of protected accounts for each account-holder, to the extent practicable, and present an aggregated view (‘Single Customer View’) of each account-holder. This will help to ensure that, in the event of the Minister declaring an ADI to be subject to the FCS, APRA will be able to pay out account-holders of the ADI in a timely and effective manner. More generally, the effective operation of the FCS will also help to ensure continued confidence in the financial system.

The instrument will take effect on the later of 1 January 2012 and the date of registration of the instrument on the Federal Register of Legislative Instruments.

3.                   Operation of the instrument

Prudential Standard APS 910 Financial Claims Scheme (APS 910) sets out the minimum requirements ADIs must meet to enable APRA to effect the timely payout of account-holders of a failed ADI in the event that the Minister declares, under section 16AD of the Banking Act, that subdivision C of Division 2AA of Part II (of the Banking Act) applies to that ADI.

4.                   Consultation

APRA has undertaken extensive consultation on the proposed implementation of the FCS over the last two years. APRA has engaged with industry through formal consultation on the proposed requirements as well as through industry workshops and meetings with parties affected by the proposals. The formal consultation included:

1. Industry Discussion Paper released in January 2010;

2. Response Paper and draft standard released in August 2010; and

3. A further Response Paper and revised draft standard in September 2011.

APRA has, in finalising the prudential standard, given consideration to issues raised by industry and modified its proposals where appropriate to address these matters, while ensuring that the proposals continue to allow for the objectives of the FCS to be met. APRA has increased the transition period before ADIs are required to comply with the prudential standard in order to address concerns expressed by some ADIs about their ability to put in place the necessary systems changes in the time period APRA had initially proposed. Provision for an extended transition period has also been made for those ADIs which can demonstrate to APRA the need for a longer period to comply with the prudential standard. APRA has also sought to amend the required attestation by the chief executive officer and the audit sign-off to reflect issues raised by industry in the consultation process.

5. Regulation Impact Statement

The Office of Best Practice Regulation has advised APRA that a Regulation Impact Statement is not required.