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Connexus : Issue 39
20 Connexus Regulation Deposits definition raises doubts Abacus has taken issue with a number of the corporate regulator’s assumptions in forming its view of what constitutes a ‘basic’ term deposit product. By lUkE lAWlER T he Australian Securities and Investments Commission is considering industry submissions on its proposal to provide conditional regulatory relief for term deposits that can’t be withdrawn without notice of up to 31 days. The relief proposal was prompted by new global prudential standards on liquidity r isk management that encourage ADIs to increase the proportion of their deposits that are not available at-call to depositors. The Basel III liquidity regime that will apply to major banks favours deposits that can’t be withdrawn within 30 days. ASIC rev isited the defi nition of ‘basic deposit product’, a s set out under s761A of the Cor porations Act, to determine whether term deposits with a 31-day notice-of-withdrawal period would qualify as ‘basic’. The scope of the definition is important for determining licensing, training and disclosure obligations for A DIs. ASIC concluded that it was unclear whether such deposits would qualify as ‘basic’ and that there would be “significant regulatory uncertainty” about such deposits in the absence of ASIC relief. ASIC is proposing to issue class order relief to treat such deposits as ‘basic’ for regulator y purposes, subject to a list of proposed conditions. Possible conditions floated by ASIC include using a “new product name” for these ter m deposits, and additional disclosure and notification obligations. Abacus has lodged a submission with ASIC taking issue with a number of the assumptions made in ASIC’s consultation paper (CP 169) on the relief proposal. “Wedo not acceptthatitisa long-standing practice among ADIs to allow ter m deposits to be breakable at the depositor’s discretion,” says the Abacus submission. “Many ADIs allow ter m deposits to be breakable only at the ADI’s discretion. “ We do not accept that the ‘current practice among ADIs is to issue term deposits that are generally breakable by the depositor without notice’ and that the imposition of a notice period would ‘result in a departure from the current operation of a basic retail banking product that has been long understood by consumers’. “ We consider that it has been long under stood by consumers that term deposits are for fixed terms with fixed returns.” legislative response needed The fact that ASIC has identified uncer tainty about whether commonly available term deposits of up to two years are basic deposit products (unless they are at call) requires a legislative response, says the Abacus submission. “ The ‘basic deposit product’ definition should be amended to remove any doubt that term deposits of up to two years are covered. “ The amended definition should also cover term deposits of between two and five years that have a notice of withdrawal period of up to 31 days, to accommodate the prudential regulator y change that has prompted CP 169. “In the meantime, Abacus suppor ts the provision of relief by ASIC to enable ADIs to issue term deposits of up to five years that can only be broken on 31 days’ notice while being subject to the same regulatory requirements as ‘basic deposit products’ in the Cor porations Act 2001.” The submission says this would facilitate implementation of global prudential refor ms for Australian banking institutions as smoothly as possible while minimising the impact on the well-functioning ter m deposit market. luke lawler is Abacus-Australian Mutuals’ senior manager public affairs. ThE ‘basic deposit product’ DEFInITIon ShouLD BE To REMovE Any DouBT ThAT TERM DEPoSITS oF uP To TWo yEARS ARE CovERED. amENDED