Financial Sector (Collection of Data) exemption No. 1 of 2006
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Financial Sector (Collection of Data) Act 2001 (the Act), subsection 16(1)
Under subsection 16(1) of the Act, APRA may, by writing, exempt a financial sector entity from the requirement to comply with all the requirements or specified requirements contained in applicable reporting standards. Subsection 16(3) of the Act provides that an instrument under subsection 16(1) is a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901, as a result of which such instruments are deemed to be ‘legislative instruments’ for the purposes of the Legislative Instruments Act 2003 (see paragraph 6(d)(i)).
Bank of China Limited ABN 29 002 979 955 (BoC) is a “financial sector entity” as defined by subsection 5(2) of the Act. Financial Sector (Collection of Data) exemption No. 1 of 2006 (the instrument) exempts BoC from:
(i) all the requirements contained in the reporting standards specified in Part 1 of the Schedule; and
(ii) the specified requirements contained in the reporting standards specified in Part 2 of the Schedule.
1. Background
BoC is a foreign ADI. However, the reporting standards set out in the Schedule to the instrument have applied to BoC as if its Australian branch operations constituted a locally-incorporated ADI.
This reflects the fact that, under the Banking Act 1959 (the Banking Act), BoC has been treated differently to other foreign ADIs. Section 11E of the Banking Act provides that the depositor protection provisions in Division 2 of Part II of the Banking Act do not apply to foreign ADIs, and that foreign ADIs must advise customers of this before taking deposits in Australia. Because of this, foreign ADIs generally have not undertaken retail banking activity in Australia. However, section 11D of the Banking Act has the effect that BoC is not to be treated as a ‘foreign ADI’ for the purposes of section 11E.
Accordingly, until recently (see below), BoC did undertake retail banking in Australia.
For this reason, certain reporting standards made under paragraph 13(1)(a) of the Act have provided that, for the purpose of those particular reporting standard, BoC’s branch operations in Australia are taken to be a locally-incorporated bank and BoC has consequently been required to report in respect of its Australian branch operations as if those operations constituted a locally-incorporated bank.
Over the last few years, APRA has encouraged BoC to establish a separate locally incorporated subsidiary to undertake its retail banking business in order to bring the conduct of its operations in Australia into conformity with that which is required in relation to all other ADIs.
On 5 August 2005, a subsidiary of BoC, Bank of China (Australia) Limited ACN 110 077 622 (BOCAL) was granted a licence to conduct banking business in Australia under section 9 of the Banking Act. The transfer of the retail assets and liabilities from BoC to BOCAL was approved by APRA on 21 September 2005, with the transfer completed prior to the commencement of BOCAL’s operations on 26 September 2005.
Given that BoC’s retail business has been transferred to BOCAL, and BOCAL is reporting on this business as a locally-incorporated ADI under the reporting standards, it is appropriate that, pending amendment of the reporting standards, appropriate exemptions be granted to ensure that BoC is now only required to report as an ordinary foreign ADI.
As a result of BoC’s changed status under the Banking Act, under subsection 16(1) of the Act, APRA has decided to exempt BoC from certain reporting standards in their entirety and specified requirements in other reporting standards.
2. Purpose of the instrument
The purpose of the instrument is to exempt BoC from all of the requirements contained in the following reporting standards:
- ARS 110.0 Capital Adequacy;
- ARS 112.1 Capital Adequacy – On-Balance Sheet Business Risk Weighting Schedule; and
- ARS 113.0 Market Risk,
and the requirement to report in respect of BoC’s Australian branch operations as if those operations constituted a locally-incorporated bank contained in the following reporting standards:
- ARS 220.0 Impaired Facilities;
- ARS 221.0 Large Exposures;
- ARS 230.0 Commercial Property;
- ARS 320.0 Statement of Financial Position (Domestic Books);
- ARS 330.0 Statement of Financial Performance;
- ARS 330.1 Interest Income and Interest Expense; and
- ARS 330.2 Other Operating Income.
The instrument is intended to provide an interim solution until such time as the above reporting standards are amended.
3. Consultation
APRA has been in consultation with BOCS and BOCAL in relation to the rectification of this issue.