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Regulation of Registered Financial Corporations

Regulation Impact Statement – Australian Prudential Regulation Authority

On 18 March 2015, the Australian Prudential Regulation Authority (APRA) finalised changes to the banking exemption (Exemption Order) for Registered Financial Corporations (RFCs). Under the Exemption Order, RFCs that undertake ‘banking business’ as defined in the Banking Act are exempt from the need to be authorised as deposit-taking institutions (ADIs) by APRA. In the context of the previous Exemption Order, this meant that RFCs were able to offer similar services and products to that of an ADI without the same regulatory requirements. APRA considered there was a close resemblance between RFCs and ADIs, and that, as a result, retail investors were having difficulty distinguishing between the two. The Regulation Impact Statement (RIS) prepared by APRA considered that some retail investors may therefore mistakenly invest in an RFC thinking it was an ADI. Given RFCs do not have the same regulatory assurances as ADIs, APRA considered this could be detrimental to retail investors. The revised Exemption Order removes the ability of RFCs to offer at-call deposit accounts and imposes stricter conditions on certain terminology and marketing practices by RFCs. A RIS was prepared and certified by APRA. The OBPR assessed the RIS as compliant but not consistent with best practice because consultation was inadequate and feasible options provided to APRA by stakeholders were not analysed in sufficient depth. APRA has estimated that the average annual regulatory cost of the proposal is $45,000 and this has been agreed by the OBPR.