Potential new powers for APRA to
make non-ADI lender rules

On 17 July 2017 Treasury released an Exposure Draft of the Treasury Laws Amendment (Non-ADI Lender Rules) Bill 2017 implementing the Commonwealth Government’s 2017–18 Budget proposal to introduce measures to respond flexibly to financial and housing market developments that pose a risk to financial stability.

The Draft Bill’s scope recognises that there are other entities similar to ADIs that provide finance for various purposes within Australia, but are not considered to be conducting ‘banking business’ as they do not take deposits.

As these entities do not have depositors to protect, they are not required to be licensed as ADIs and are not prudentially regulated by APRA and only have to report data to APRA in certain circumstances.

The Draft Bill provides APRA with new powers to make rules in relation to the provision of credit by entities that are not authorised deposit-taking institutions (non-ADI lenders) and which derive from APRA’s existing powers in respect of ADIs.

The type of “Lending Finance” captured by the Bill includes any of the following:

  1. the lending of money, with or without security;
  2. the carrying out of activities, whether directly or indirectly, that result in the funding or originating of loans or other financing.

 

The regulatory framework is intended to extend to the mortgage and personal finance markets but it will not does not extend to life insurers, private health insurers and health benefit funds which are otherwise supervised by APRA under separate regimes.

APRA’s powers will also not extend to companies with less than $50M debts due to it resulting from transactions entered into in the course of the provision of finance and if the sum of the values of the principal amounts outstanding on loans or other financing, as entered into in a financial year, does not exceed $50M.

Specifically, if passed the Draft Bill will:

1. amend the Banking Act 1959 to provide APRA with a power to:

  • to make Non-ADI Lender Rules with respect to lending finance by Non-ADI lenders, for the purpose of addressing financial stability risks.
  • issue a direction to a Non-ADI lender should the entity fail to comply with a Non-ADI Lender Rule;
  • introduce penalties for Non-ADI lenders that fail to comply with a direction by APRA in relation to the above matters.

2. amend the Financial Sector (Collection of Data) Act 2001 to allow APRA to collect data from Non-ADI lenders for the purposes of monitoring their activities and determining when to use its new powers.

Under the draft Bill, APRA may impose different compliance requirements which extend to all Non-ADI lenders or a specified class of Non-ADI lenders or one or more specified Non-ADI lenders.

Importantly APRA’s powers to make Non-ADI Lender Rules do not equate to ongoing regulation by APRA of Non-ADI lenders. That is, APRA will not prudentially regulate and supervise Non-ADI lenders as it otherwise the case for ADIs.

In addition, APRA’s new rule making powers for Non-ADI lenders are not intended to otherwise cover credit or lending matters which are the responsibility of ASIC, such as responsible lending obligations and as a consequence APRA is required to consult with ASIC before making any Non-ADI Lender Rules.

Treasury is currently seeking stakeholder views on the Exposure Draft and consultation will close on Monday, 14 August 2017.

If you require assistance in navigating the Draft Bill or preparing a response to Treasury please contact Meridian’s Financial Services Principal, Michael Bracken on +61 2 9018 9977.

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