religious charitable development funds

Reprieve from APRA for Religious Charitable Development Funds

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The Australian Prudential Regulation Authority (APRA) has today released revised proposals on changes to the exemption order under the Banking Act 1959 (Cth) for religious charitable development funds (RCDFs). These are a response to submissions to APRA’s April 2013 discussion paper on this issue which we reported on in our e-alert of 2 May 2013 APRA moves to tighten prudential oversight over financiers and religious and charitable funds operators.

APRA remains of the view that unauthorised entities should not be able to offer deposit products or products with features and characteristics that are clearly associated with product offerings of Authorised Deposit-taking Institutions. However, APRA is now proposing an extension of the exemption order for RCDFs currently exempted, but subject to additional conditions including:

  • any product offered to a retail investor will have to have a minimum term or notice period of 31 days and
  • the use of terms ‘deposit’ and ‘at-call’ will not be allowed in relation to retail products or in marketing to retail investors.

These conditions are consistent with those that APRA has recently proposed for Registered Financial Corporations and consistent with the global principle governing the boundaries between prudentially regulated institutions and shadow banking.

APRA will continue to allow RCDFs to use BPAY to transact between affiliates of the RCDF and to offer BPAY to wholesale investors.

Charitable organisations who raise investment funds currently also have exemptions from the licensing, fundraising, debentures and managed investment provisions of the Corporations Act 2001 (Cth) under ASIC  Regulatory Guide 87 (RG 87) if they comply with the conditions to the exemptions. ASIC recently consulted on this regulation with proposals to either:

  • remove existing exemptions available to charities that raise investment funds under RG 87, or
  • retain existing exemptions on the basis that they are only available to organisations that satisfy both existing and new conditions to the exemptions.

Examples of new conditions proposed include that charities must hold 75% of their assets in assets that directly relate to their charitable purpose, and where the fund is offered to retail clients:

  • have an Australian financial services licence, and
  • meet minimum capital and liquidity requirements.

Submissions for the ASIC consultation paper closed in July 2013 and ASIC is yet to release a response.

The deadline for submissions to APRA on these revised proposals is 4 October 2013.

APRA Moves to Tighten Prudential Oversight Over Financiers and Religious and Charitable Funds Operators

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In a discussion paper released by APRA late last month, a number of proposals are made that affect current exemption orders for Registered Financial Corporations (“RFCs”) and some Religious Charitable Development Funds (“RCDFs”), many of them operated by churches.

At present, these entities are exempt from the need to be authorised as deposit-taking institutions (“ADIs”). These exemptions are generally historical in nature according to APRA.

The main concern behind these proposals as expressed by APA, is to reduce the likelihood that an investor, particularly a retail investor would confuse investments with and RFC or an RCDF  with and ADI deposit and would believe they have the same level of protection afforded under the Banking Act.

The proposals are as follows:

For RFC’s under Banking (Exemption) Order No 96

  • Restricted use of terms such as “at call” and “deposit” by RFCs in describing products.
  • Prohibiting use of certain transaction facilities such as ATM access, BPay and EFTPOS facilities.
  • Debenture offerings to have a minimum maturity of 31 days.

These restrictions and prohibitions are proposed to apply from 1 July 2013 for all funds raised from that date. A transition period of up to three years is to be allowed for existing retail debenture issues.

For RCDFs:

  • The current exemption from the need to be authorised under the Banking Act is proposed to be extended for another 12 months to 27 June 2014.
  • From 28 June 2014, RCDFs have to register as an RFC or as a registered managed investment scheme, subject to exceptions where RCDFs do not take funds from retail investors.

More than 50 entities, with assets of more than $7 billion, will be affected.

In addition to the above proposals, APRA also proposed changes to guidelines under section 66 of the Banking Act including clarification of what is a financial business and the requirements for ADIs to operate as banks and credit unions. There are no major changes in this regard.

Submissions may be made until 24 May 2013.