ASIC today released a class order to facilitate term deposits that are only breakable on 31 days’ notice.
The Class Order [CO 14/1262] gives relief for 18 months to enable 31-day notice term deposits of up to five years to be given concessional regulatory treatment as basic deposit products under the Corporations Act (the Act). This is intended to give Government the opportunity to consider law reform.
As part of the Basel III reforms, the Australian Prudential Regulation Authority (APRA) will implement the liquidity coverage ratio (LCR) requirement from 1 January 2015, as set out in Prudential Standard APS 210 Liquidity (APS 210).
Term deposits that require 31 days’ notice for early withdrawal will receive favourable liquidity treatment under APS 210.
The new class order will provide industry with certainty that these sorts of term deposits will be treated as basic deposit products, subject to meeting the relief conditions.
The class order formalises ASIC's previous conditional no-action position on 31-day notice term deposits. The relief conditions are about ensuring consumers can make confident and informed decisions when investing in the new type of term deposit.
They also help consumers understand the new requirement to give 31 days’ notice to ‘break’ their term deposit and ensure this is considered when the term deposit rolls-over.
ASIC will continue to work with industry to help ADIs meet the relief conditions, including carryover of arrangements from the previous no-action position to the class order, while ensuring consumer protection.
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Background
The definition of basic deposit product in section 761A of the Act does not specify the period of notice an ADI may require a depositor to give in order to make an early withdrawal from a term deposit of up to two years.
It is therefore unclear what notice period for withdrawal could be imposed that is consistent with the characterisation of a term deposit of up to two years as basic deposit product. ASIC’s view is that a notice period as long as 31 days for early withdrawal is unlikely to meet the definition of basic deposit product.
Section 761A of the Act provides that term deposits of between two and five years must allow an early withdrawal without prior notice in order to meet the basic deposit product definition (except for the special provision for mutual ADIs contained in reg 7.1.03A of the Corporations Regulations 2001).