Banking (prudential standard) determination No. 10 of 2011
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority
Banking Act 1959, section 11AF
- 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.
Overview
The Banking (Prudential Standard) Determination No. 10 of 2011, enacted by the Australian Prudential Regulation Authority (APRA) under the Banking Act 1959, was introduced to address the need for a robust framework to ensure the effective operation of the Financial Claims Scheme (FCS). The FCS was established to protect account-holders of an insolvent authorised deposit-taking institution (ADI) by guaranteeing timely access to their deposits up to a specified limit. APRA, as the administrator of the FCS, determined that a new prudential standard was necessary to establish requirements for ADIs to identify protected accounts and provide a consolidated view of each account-holder, facilitating efficient payout processes in the event of an ADI's insolvency. This prudential standard aims to maintain confidence in the financial system by ensuring the FCS operates as intended, with the instrument taking effect from the later of 1 January 2012 or its registration on the Federal Register of Legislative Instruments.
Scope and Application
Banking (prudential standard) determination No. 10 of 2011 applies to authorised deposit-taking institutions (ADIs) as specified under section 11AF of the Banking Act 1959. This determination is intended to establish new prudential requirements that ADIs must meet to ensure the effective operation of the Financial Claims Scheme (FCS), which was introduced in October 2008 to safeguard account-holders of insolvent ADIs and provide them with timely access to their deposits. The Australian Prudential Regulation Authority (APRA) is responsible for administering the FCS and ensuring that these prudential requirements are met, thus maintaining confidence in the financial system. The prudential standard, known as APS 910, will come into effect on 1 January 2012 or the date of registration of the instrument on the Federal Register of Legislative Instruments, whichever is later. APRA has consulted extensively with the industry through various discussions and workshops, and has extended the transition period for compliance to address concerns raised by ADIs, while ensuring the objectives of the FCS are met.
Key Provisions
Banking (prudential standard) determination No. 10 of 2011 (the Instrument) introduces a new prudential standard under section 11AF of the Banking Act 1959. This standard sets out the requirements authorised deposit-taking institutions (ADIs) must meet to ensure the effective operation of the Financial Claims Scheme (FCS). The FCS aims to protect account-holders of an insolvent ADI by providing them with timely access to their deposits up to the maximum amount payable under the scheme. Prudential Standard APS 910 Financial Claims Scheme (APS 910) specifies the minimum requirements ADIs must meet to enable the Australian Prudential Regulation Authority (APRA) to effect timely payouts to account-holders in the event of an ADI failure. These requirements include the implementation of systems for the identification of protected accounts and the presentation of a 'Single Customer View' of each account-holder, which will help APRA manage payouts effectively.
The obligations imposed by the Instrument on ADIs include the establishment of systems and processes to identify protected accounts and present a 'Single Customer View' of account-holders. ADIs must ensure these systems are in place to the extent practicable, with a specific focus on being able to manage and communicate with account-holders efficiently should the Minister declare an ADI subject to the FCS. Additionally, ADIs are required to make appropriate attestations regarding the implementation and effectiveness of these systems. The Instrument also extends the transition period for compliance to accommodate ADIs' implementation of necessary systems changes, with an option for an extended period for those demonstrating a need for more time. The regulatory framework further mandates that the chief executive officer of an ADI must attest to the compliance of these requirements, and these attestations must be subject to audit sign-off.
Breaching the requirements set out in the Instrument can lead to various consequences. While the explanatory statement does not detail specific offences or penalties, non-compliance with APRA’s prudential standards can generally result in regulatory action. This may include enforcement actions, such as fines, public reprimands, or more stringent monitoring and reporting requirements. In severe cases, APRA may also take steps to address deficiencies in governance or risk management practices. The specific penalties for non-compliance would depend on the nature and severity of the breach, as well as any applicable provisions in the Banking Act 1959 or other related regulations.