Banking (restricted word or expression) determination No. 1 of 2006
Banking (restricted word or expression) consent No. 1 of 2006
EXPLANATORY STATEMENT
Issued by the authority of the Australian Prudential Regulation Authority (‘APRA’)
Banking Act 1959, paragraph 66(1)(d), subsection 66(1B) and subsection 66(5)
Acts Interpretation Act 1901, subsection 33(3)
Background
In July 2003, APRA announced final regulatory arrangements for authorising (under section 9 of the Banking Act) and supervising a new class of ADIs specialising in credit card services.
Known as Specialist Credit Card Institutions (SCCIs), the entities issue credit cards and/or acquire credit card transactions from merchants but do not conduct more general banking or financial activities such as taking deposits.
To facilitate this, a regulation was made on 17 July 2003 under paragraph (b)(ii) of the definition of ‘banking business’ in section 5 of the Banking Act. The regulation prescribes the activities of credit card issuing and credit card acquiring in the four party credit card schemes (VISA, MasterCard and Bankcard) as ‘banking business’ for the purposes of the Act. A body corporate wishing to carry on the ‘banking business’ of credit card issuing and/or credit card acquiring as a participant or member of these schemes will be required to obtain an authority to do so under section 9 of the Banking Act. Once such an authority has been granted, the body corporate will be an authorised deposit-taking institution (ADI) within the meaning of the Act and will be regulated by APRA.
In connection with this, the Reserve Bank of Australia has made Access Regimes applying to VISA, MasterCard and Bankcard under s 12 of the Payment Systems (Regulation) Act 1998. The Access Regimes are designed to facilitate access by specialist credit card issuers and acquirers (i.e. credit card issuers and acquirers that do not carry on other forms of banking business) to those credit card schemes on the same terms as other ADIs. These schemes limit their membership to ADIs or prudentially regulated financial institutions. The Access Regimes prohibit the above four party credit card schemes from discriminating between (a) ordinary ADIs (traditional banks and other deposit-takers) and (b) SCCIs (entities that only carry on banking business within the meaning of the new regulation), when deciding who to admit as a participating issuer or acquirer.
Unlike ordinary ADIs, SCCIs are authorised to engage only in the banking business of credit card issuing and/or credit card acquiring, and are not authorised to undertake any other form of banking business. A restriction will be imposed on an SCCI’s section 9 authority (under the Banking Act) to this effect. Accordingly, SCCIs will not be permitted to accept deposits (other than incidental credit balances on credit card accounts).
To distinguish SCCIs from other ADIs, a condition is generally imposed on the authority of each SCCI requiring it to use or assume the restricted expressions ‘specialist credit card institution’ and ‘SCCI’ in connection with their financial business upon authorisation. These expressions have been determined to be ‘restricted expressions’ under Banking (restricted word or expression) determination No. 1 of 2006 made under s 66(5) of the Banking Act (see below).
A class consent made by APRA under subsection 66(1B) of the Banking Act, by way of Banking (restricted word or expression) consent No. 1 of 2006 (see below), ensures that these specialist institutions, and only these institutions, are allowed to use the restricted expressions in connection with their financial business.
Banking (restricted word or expression) determination No. 1 of 2006 (‘the Determination’)
Under section 66 of the Banking Act 1959 (the ‘Act’), a person cannot use or assume a restricted word or expression in connection with their financial business without the consent of APRA.
Subsection 66(5) of the Act provides APRA with the power to determine (in writing) that a specified word or expression is to be a restricted word or expression for the purposes of section 66 of the Act.
Under the Determination, APRA has determined that the expressions ‘specialist credit card institution’ and ‘SCCI’ are restricted expressions for the purposes of subsection 66(5).
The Determination replaces a determination in the same terms made on 17 July 2003 (‘the 2003 determination’). APRA’s intention was to publish notice of the 2003 determination in the Gazette (as then required by the virtue of the determination being a disallowable instrument) on 23 July 2003. However it appears that, although notice of two related instruments was published in the Gazette on that day, the 2003 determination was not so published; accordingly, it never came into force.
The Determination therefore ensures that the relevant expressions are restricted, as intended by the 2003 determination.
Banking (restricted word or expression) consent No. 1 of 2006 (‘the Consent’)
Section 66 of the Banking Act contemplates that APRA may consent to the assumption or use of a restricted expression (including one determined under subsection 66(5)) by a person in connection with their financial business (see in particular paragraph 66(1)(d)).
Subsection 66(1B) provides that a consent may apply to a particular person or a person included in a class of persons.
The Consent allows a particular class of persons to assume or use the expressions ‘specialist credit card institution’ and ‘SCCI’ in connection with their financial business.
That class comprises bodies that effectively meet the following conditions. First, they must be ADIs (that is, bodies corporate that have been granted banking authorities under the Banking Act). Secondly, they must carry on credit card issuing and/or credit card acquiring within the meaning of regulation 2(2) of the Banking Regulations 1966. Thirdly, they must not carry on any other form of banking business. (‘Banking business’ is defined in section 5 of the Banking Act.)
The Consent revokes a class consent made in the same terms on 17 July 2003 (‘the 2003 consent’).
There is one difference between the Consent and the 2003 consent, which is that the 2003 consent had the effect that only ADIs that carry on credit card issuing and/or acquiring (within the meaning of regulation 2(2) of the Banking Regulations) but not any other form of financial business (unless incidental to the issuing and/or acquiring) could use the restricted expressions, whereas the (new) Consent applies to ADIs that carry on credit card issuing and/or acquiring but not any other form of banking business. This brings the Consent into line with the definition of ‘specialist credit card institution’ in Prudential Standard APS 240, which was made under section 11AF of the Banking Act on 17 July 2003. It also makes it clear that specialist credit card institutions cannot undertake general banking business such as taking deposits, but without necessarily ruling out other forms of financial business – eg facilitating debit card transactions processing activities. (However, APRA will, in line with its usual practice, review the proposed financial and other business activities of each applicant for a relevant banking authority. In doing so, APRA will assess whether it is necessary or desirable to impose additional restrictions on their non-credit card business, by way of a condition on their authority, for prudential reasons.)
Effect of the Determination and the Consent
The combined effect of the Determination and the Consent is that only the entities that satisfy the conditions mentioned above will be automatically entitled to use or assume restricted expressions ‘specialist credit card institution’ and ‘SCCI’ in relation to their financial business upon authorisation.
ADIs conducting banking business as part of their more general activities will not be able to use or assume the restricted expressions. Accordingly, this allows SCCIs to be distinguished as a special class of ADIs.
Consultation
APRA consulted widely on its proposals in relation to SCCIs beginning in August 2002 when it released its proposed authorisation guidelines on SCCIs. The proposed guidelines advised that the expressions ‘specialist credit card institution’ and ‘SCCI’ would be determined under subsection 66(5) of the Banking Act, and that only ADIs that performed credit card issuing and/or acquiring and services directly related to that would be entitled to assume or use those expressions in connection with their financial business. APRA received no adverse comment in response to this proposal. No further consultation has been engaged in since making the 2003 determination and 2003 consent (which the present instruments replace).