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.
Overview
The Australian Prudential Regulation Authority (APRA) issued an instrument under the Banking Act 1959, dated 16 November 2005, to determine that the expressions "purchased payment facility provider" and "PPF provider" are restricted expressions. This was done to ensure that these terms could not be used by entities operating in the financial sector without APRA's consent, thus maintaining regulatory clarity and control over entities providing purchased payment facilities. The instrument was introduced to address the need for consistent regulatory treatment of payment facilities akin to banking business, ensuring they are prudentially supervised by APRA. The authority to determine restricted expressions is granted under section 66 of the Banking Act, and this instrument complements a class consent that allows authorised deposit-taking institutions to use the specified terms.
The instrument was developed following a consultation period between May and June 2005, which sought public feedback on the proposed prudential supervision of providers of purchased payment facilities. Although no comments were received specifically on the restriction of these terms, the broader consultation process informed the final determination. The instrument aims to maintain the integrity and safety of the payments system, ensuring that entities providing such services are appropriately supervised and regulated.
Scope and Application
The explanatory statement pertains to an instrument issued by the Australian Prudential Regulation Authority (APRA) under subsection 66(5) of the Banking Act 1959, which designates the terms "purchased payment facility provider" and "PPF provider" as restricted expressions. This means that these specific terms are restricted and cannot be used or assumed by anyone conducting financial business without APRA’s consent. The objective of this instrument is to prevent misuse of these terms, which are significant within the financial sector due to their association with the provision of purchased payment facilities (PPFs) such as stored value cards and internet-based payment systems. This regulatory measure ensures that only authorised entities can use these terms, thereby maintaining the integrity and safety of the payments system. The instrument is part of a broader regulatory framework that includes the Payment Systems (Regulation) Act 1998 and extends to all PPFs that are considered akin to banking business, whether or not the provider is an authorised deposit-taking institution (ADI). This regulatory approach is designed to provide an appropriate level of protection for the value held within these schemes and is complemented by a class consent that allows all ADIs to use these terms. The instrument comes into effect on the day it is registered on the Federal Register of Legislative Instruments.
Key Provisions
The instrument issued by the Australian Prudential Regulation Authority (APRA) under subsection 66(5) of the Banking Act 1959 (section 66) sets out that the terms 'purchased payment facility provider' and 'PPF provider' are restricted expressions for the purposes of the Act. This means that anyone engaged in financial business is prohibited from using these terms without APRA’s explicit consent (section 66). The intent behind this restriction is to control and regulate the use of these specific terms to ensure a consistent and clear regulatory environment for financial businesses, particularly those involved in providing purchased payment facilities (PPFs) such as stored value cards, internet-based payment systems, and travellers’ cheques.
APRA’s authority to determine restricted expressions is derived from section 66 of the Act, which mandates that no one can use or assume a restricted word or expression in connection with their financial business without APRA’s permission. This instrument specifically designates the expressions 'purchased payment facility provider' and 'PPF provider' as restricted, thereby enforcing a regulatory framework that governs their use. The broader objective is to align with the recommendations of the 1997 Financial System Inquiry and the subsequent legislative measures, including the Payment Systems (Regulation) Act 1998, to ensure that all PPFs are prudentially supervised by APRA, irrespective of whether the provider is an authorised deposit-taking institution (ADI) or not.
Entities affected by this Act are required to comply with the regulatory stipulations imposed by APRA. For instance, any financial business involving PPFs must adhere to the prudential standards set by APRA, particularly those outlined in the Prudential Standard APS 610. This includes new entities that operate PPFs, which will be supervised as a distinct class of ADIs. Existing ADIs will also need to comply with these standards if they wish to provide PPFs. The obligations extend to ensuring the safety and integrity of the payment system and protecting the value held in PPF schemes. PPF providers, unlike ordinary ADIs, are restricted to providing only PPFs and are not authorised to conduct general banking business or accept deposits for the purpose of making advances of money, except in cases where incidental credit balances result in liabilities that must comply with APRA’s investment and liquidity requirements.
Failure to comply with the restrictions on using the terms 'purchased payment facility provider' and 'PPF provider' can lead to legal consequences. As per section 66, it will be an offence for a person engaged in financial business to assume or use these restricted expressions without APRA’s consent. The legal repercussions for such breaches are not explicitly detailed in the instrument but would typically involve penalties as prescribed under the Act or related regulations. APRA's class consent, issued concurrently with this instrument, allows all ADIs to use the restricted expressions, thus providing a clear pathway for compliance while ensuring that the restricted terms are not misused in the financial sector.