EXPLANATORY STATEMENT
STATUTORY RULES 1986 NO. 303
ISSUED BY THE AUTHORITY OF THE TREASURER
BANKING ACT 1959
BANKING (SAVINGS BANKS) REGULATIONS (AMENDMENT)
Section 71 of the Banking Act 1959 (the Act) empowers the Governor-General to make regulations, not inconsistent with the Act, prescribing all matters which by the Act are required or permitted to be prescribed for carrying out or giving effect to the Act. Section 37 of the Act provides that Regulations made under the Act shall cover, inter alia, the following matter:
• the investment of the funds of savings banks.
The Banks (Savings Banks) Regulations have been designed to regulate the conduct of savings banks including, in particular, the investment of funds, those from whom savings banks may not accept deposits and the ability of customers to draw cheques on savings banks.
Regulation 5(2) of the Banking (Savings Banks) Regulations requires a savings bank to maintain investments of specified kinds (such as loans for housing on the security of land, Commonwealth securities, deposits with banks and the Reserve
Bank) that, together with cash on hand in Australia, are not less than the amount on deposit with the savings bank. Concern has arisen that paragraph 5(2)(f) of the Regulations, which specifies securities issued or guaranteed by an authority constituted by or under an Act or a State Act as one kind of permissible investment, has, against the background of recent financial innovation, become vague and unnecessarily restrictive if given a strict interpretation. Confusion may have led to a number of technical breaches by savings banks of this regulation.
The Treasurer has agreed that the regulations should be amended so as to remove any vagueness from the paragraph. This was achieved by removing the vague word ‘securities’ and replacing it with explicit classes of financial instruments. Paragraph 5(2)(f) now reads:
• bills of exchange (other than cheques) drawn by, promissory notes issued by and debentures, stock and bonds issued or guaranteed by, an authority (not being a prescribed bank) of the Commonwealth or of a State or Territory.
Sub-regulation 5(2A) has been omitted because it was made redundant by the above amendment.
The opportunity has also been taken to amend the Schedule referred to in sub-regulation 5(1). This Schedule lists authorised dealers in the short-term money market with which savings banks are permitted to place funds. Several of these authorised dealers changed their names: ‘Delfin Discount Company Limited’ to ‘Colonial Mutual Discount Company Limited’ effective from 27 August 1984; ‘AUC Discount Limited’ to ‘Holst Discount Limited’ effective from 16 July 1985; ‘AMP Discount Corporation Limited’ to ‘PP Discount Limited’ effective from 30 July 1985; ‘Capel Court Securities Limited’ to ‘GIO Securities Limited’ effective from 9 October 1985; and ‘National Discount Corporation Limited’ to ‘NDC Securities Limited’ effective from 2 December 1985. Due to these changes, purely formal amendments to the Schedule are required. These amendments were expressed to take effect retrospectively. Such a retrospective regulation is permissible according to section 48 of the Acts Interpretation Act because it does not prejudicially affect the rights of any person nor impose any retrospective liability on them.
Overview
The Banking (Savings Banks) Regulations (Amendment) 1997 were enacted to address the vagueness in the existing regulatory framework for savings banks as outlined in the Banking Act 1959. This legislative amendment was authorised by the Treasurer under the authority of the Parliament, specifically to refine the investment guidelines for savings banks, thereby ensuring they comply with the legislative intent without encountering technical breaches due to regulatory ambiguity. The policy objective behind this amendment was to clarify and modernise the types of investments permissible under the Regulations, thus facilitating better financial management and compliance among savings banks while adapting to recent financial innovations. The changes made to the Regulations involved explicitly defining certain financial instruments and updating the list of authorised dealers to reflect their name changes, ensuring the regulatory framework remains current and effective.
Scope and Application
The Banking (Savings Banks) Regulations (Amendment) Statutory Rules 1997 pertain to the regulation of savings banks in Australia, particularly concerning the investment of funds, the acceptance of deposits, and the drawing of cheques by customers. These regulations are amendments to the existing Banking (Savings Banks) Regulations and are made under the authority of the Treasurer pursuant to section 71 of the Banking Act 1959. They aim to clarify the kinds of permissible investments for savings banks, particularly by amending the specification of securities that can be held as investments. This amendment was necessary due to concerns about the vagueness of the term "securities" and its potential to cause technical breaches by savings banks. The amendment replaces the term "securities" with explicit classes of financial instruments such as bills of exchange, promissory notes, and debentures, stock, and bonds issued or guaranteed by Commonwealth or state authorities. Additionally, the amendment updates the Schedule of authorised dealers in the short-term money market to reflect changes in the names of these entities, ensuring the continued applicability and relevance of the regulations. These changes do not affect any existing rights or liabilities of individuals or entities and are permissible under section 48 of the Acts Interpretation Act.
Key Provisions
The Banking (Savings Banks) Regulations (Amendment) Statutory Rules 1997 introduce significant amendments to the existing regulations governing savings banks. Specifically, regulation 5(2)(f) has been revised to clarify the types of permissible investments by savings banks. This regulation now explicitly includes bills of exchange (excluding cheques), promissory notes, debentures, stocks, and bonds issued or guaranteed by Commonwealth or State/Territory authorities. This amendment aims to address the vagueness previously found in the regulations, which may have led to technical breaches by savings banks. Additionally, sub-regulation 5(2A) has been omitted as it became redundant due to the changes made to 5(2)(f).
In terms of compliance, savings banks must ensure their investments include the newly specified financial instruments while maintaining the required proportion relative to their deposit amounts, as per regulation 5(2). This means they must now invest in bills of exchange, promissory notes, debentures, stocks, and bonds, issued or guaranteed by authorities (excluding prescribed banks). These instruments should be part of their portfolio alongside other permissible investments such as housing loans secured by land, Commonwealth securities, and deposits with banks and the Reserve Bank.
The regulations also update the Schedule listing authorised dealers in the short-term money market, reflecting the name changes of several entities. For example, 'Delfin Discount Company Limited' is now 'Colonial Mutual Discount Company Limited', and 'AUC Discount Limited' has changed to 'Holst Discount Limited'. These formal amendments, while retrospective, do not affect the rights of any person or impose any retrospective liability, as per section 48 of the Acts Interpretation Act.
Failure to comply with these regulations could result in penalties. Although specific penalties are not outlined in the explanatory statement, breaches of banking regulations generally can lead to fines, corrective actions, or other regulatory sanctions. The severity of these penalties can vary depending on the nature and extent of the breach, as well as the discretion of the relevant regulatory authority. Ensuring adherence to these regulations is crucial for savings banks to avoid such repercussions and maintain compliance with the Banking Act 1959.