Australia: Part I: Sleepers wake – The regulation of Religious Charitable Development Funds

The Australian Prudential Regulation Authority (APRA) is responsible for the prudential regulation (or as the Americans call it the "safety and soundness") of the banking sector. Any company that engages in "banking business" (which under the Banking Act 1959 (Cth) means accepting deposits and making loans) must, unless it is covered by an exemption, be authorised by APRA and comply with its prudential standards covering matters such as capitalisation and risk management. Two such exemptions are for registered financial corporations (RFCs) and religious charitable development funds (RCDFs).

The global financial crisis of 2007 – 2008 reminded regulators of the need for prudential regulation to keep up with financial innovation and to ensure that investors in financial products with bank-like features are appropriately protected. Australia's prudential regulatory framework proved its worth during what many economists called the biggest financial crisis since the Great Depression, as our regulated institutions sailed through with very little stress. However, ripples were felt. Banksia Securities was a finance company (and an RFC) that raised funds from the public by issuing debentures, which it then loaned out as residential mortgages across a large part of regional Victoria. It collapsed in 2012.

Apart from the political and fiscal response by governments, regulators around the world also responded to these events. In 2011, the international Basel Committee on Banking Supervision at the Bank for International Settlements completed a review of its 1997 Core Principles for Effective Banking Supervision. In relation to Australia, the Committee observed that the number and scale of the non-authorised and non-supervised deposit taking institutions is small but recommended that the exemption for RFCs be limited to institutions that only raise wholesale funds. Both APRA and ASIC responded with discussion papers.¹

Footnote

¹Discussion Paper: Banking Act exemptions and section 66 Guidelines. Australian Prudential Regulation Authority April 2013; Consultation Paper: 207 Charitable Investment Fundraisers Australian Securities and Investments Commission, May 2013.

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