EXPLANATORY STATEMENT

Banking Act 1959
Subsection 66(5)

DETERMINATION OF RESTRICTED EXPRESSIONS

Issued by the authority of the Australian Prudential Regulation Authority (APRA)

This explanatory statement relates to the instrument made by APRA under subsection 66(5) of the Banking Act 1959 (the Act) Determination of restricted expressions – ‘purchased payment facility provider’ and ‘PPF provider’ dated 16 November 2005 (the instrument).

APRA’s authority under section 66 of the Act to determine that certain words and expressions are restricted words and expressions

Under section 66 of 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.  This instrument determines that the expressions ‘purchased payment facility provider’ and ‘PPF provider’ are restricted expressions under the Act.

Purpose of the instrument

The purpose of this instrument is to restrict the use of the expressions ‘purchased payment facility provider’ and ‘PPF provider’.

Background

Purchased payment facilities (PPFs) include stored value cards, internet based payment systems and travellers’ cheques.  The legislative framework governing the prudential supervision of PPFs reflects the recommendations of the 1997 Financial System Inquiry (Inquiry).  As part of its response to the Inquiry, the Government enacted the Payment Systems (Regulation) Act 1998 (PSR Act), which charged the Reserve Bank of Australia with responsibility for regulating the payment system, including PPFs and their providers (defined in the PSR Act as holders of stored value). 

The Government subsequently determined that, in the interests of ensuring consistency of regulatory treatment, all PPFs akin to banking business, regardless of whether the provider was an ADI or not, should fall under the requirements of the Act and be prudentially supervised by APRA.  To facilitate this, the definition of banking business was extended to include the provision of PPFs by an amendment to the Banking Regulations 1966 in 2000.

In November 2005, APRA determined final regulatory arrangements for authorising and supervising a new class of ADIs which operate PPFs (PPF providers).  The new entities will be supervised as a new class of ADI under a new Prudential Standard APS 610 Prudential Requirements for Providers of Purchased Payment Facilities.  Institutions already authorised as ADIs under the Act will also be eligible to act as PPF providers without further authorisation.

The new PPF provider model is designed to ensure the safety and integrity of the payments system as well as to provide an appropriate level of protection for the value held in the scheme.  

Unlike ordinary ADIs, PPF providers will only be authorised to provide a PPF.  They will not be authorized to conduct the general business of banking.  PPF providers will not be authorised to accept deposits for the purpose of making advances of money (other than where incidental credit balances resulting from the provision of PPFs result in liabilities that are subject to APRA requirements on investment and liquidity).

Explanation of the instrument

The effect of the instrument is that it will be an offence for a person who carries on a financial business to assume or use the restricted expressions ‘purchased payment facility provider’ or ‘PPF provider’ in relation to that business. 

This instrument is complemented by a class consent made by APRA under subsection 66(1B) of the Act, Consent to use restricted expressions: class consent – providers of purchased payment facilities  (dated 16 November 2005) (the Consent), which allows all ADIs to use the restricted expressions ‘purchased payment facility provider’ and ‘PPF provider’. 

Consultation

This instrument forms a part of a package of instruments relating to the prudential supervision of PPF providers.  APRA undertook public consultation on its proposed regime for supervision of these institutions between 6 May and 30 June 2005.  The Guidelines for Authorisation of Providers of Purchased Payment Facilities, released as part of that package, indicated that the terms ‘purchased payment facility provider’ and ‘PPF provider’ would be restricted expressions under the Act.  Two submissions were received, neither of which commented on this aspect of the proposal.

In light of this broader consultation process, it was not viewed as necessary to undertake further consultation in relation to this instrument.

Commencement date

APRA has determined that this instrument will come into effect on the day it is registered on the Federal Register of Legislative of Instruments.