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Connexus : Issue 43
Under a proposed wide-ranging crackdown on the 'shadow banking' sector, regulations would be tightened and it would be banned from using 'bank-like' terms to describe its products. The Australian Prudential Regulation Authority and Australian Securities and Investments Commission have issued three separate consultation papers affecting debenture issuers categorised as Registered Finance Corporations, Religious Charitable Development Funds and other charities that raise investment funds. Under the proposals, RFCs, RCDFs and similar entities would be prohibited from using the terms 'deposit' and 'at call account'. In addition, retail debenture offerings would be required to have a minimum initial maturity period of 31 days so investments with debenture issuers could not be used for transactional banking activities. "There is no doubt that some RFCs present themselves to consumers in the marketplace as very like a regulated banking institution. This was clearly evident after the collapse of Banksia," says the Customer Owned Banking Association in its submission to APR A in support of the reform proposals. "The proposal to restrict RFCs from using the words 'deposit' and 'at call' and derivatives of those words will greatly assist consumers to distinguish between regulated banking institutions and other entities." ASIC is proposing to impose on retail debenture issuers new requirements in relation to tr ustees, auditors, disclosure, and capital and liquidity holdings. The association's submission supports a ban on the use of banking terminology in the marketing material of non-ADIs but it opposes 'ADI-like' regulations for non-ADIs. "Imposing quasi-pr udential regulation on debenture issuers puts these investment vehicles into a regulatory twilight zone, frustrating the objective of drawing a clear, bright line between regulated banking institutions and the shadow banking sector," the submission says. The association is calling for the introduction of more effective disclosure requirements to ensure that unsophisticated retail investors are given a simple, stark warning about investing in debentures and other risky investments. APR A is proposing to withdraw an exemption from the Banking Act that has allowed RCDFs to offer bank-like products such as savings accounts, term deposits, everyday transactional accounts and cheque books. There are 59 of these 'church funds', raising in aggregate more than $7 billion in liabilities, including about $1.1 billion sourced from individuals. The association's submission agrees with APRA's obser vation that the exemption for RCDFs is "historical in nature". "The exemption has been the subject of public debate from time to time over the past decade and is now overdue to be removed," the submission says. Charity exemption A wider group of charities that raise investment funds are to be subject to tighter regulation by ASIC, including the removal or modifcation of an existing exemption. The historical case for the exemption was that the purpose of these entities is primarily charitable rather than commercial. However, ASIC says that some religious fundraising entities appear 'bank-like' to investors. For Exposing 'shadow banks' The regulators are serious about the need to help customers distinguish between regulated banking institutions and others. BY LUKE LAWLER 20 Connexus NEWS