ASIC today released a consultation paper on proposals for relief to allow banks and non-banks to issue term deposits that are only breakable on 31 days’ notice, as part of moves by Australia’s financial services sector to meet new global liquidity standards.
Basel III liquidity standards aim to promote more resilient banking sectors, including improving sectors’ ability to absorb shocks arising from financial and economic stress.
The Australian Prudential Regulation Authority (APRA) has commenced consultation with industry, including ASIC, on the implementation of Basel III in Australia.
Term deposits for up to two years issued by authorised deposit-taking institutions (ADIs) that are only breakable on 31 days’ notice would achieve recognition of the 31-day term under the Basel III liquidity standards.
Relief may be required due to potential regulatory uncertainty about whether such term deposits would qualify as basic deposit products under the Corporations Act 2001 (the Corporations Act).
Consultation Paper 169 Term deposits that are only breakable on 31 days' notice: Proposals for relief (CP 169) outlines the relief and the conditions of relief under consideration by ASIC.
‘The conditions under consideration seek to ensure investors are provided with adequate disclosure about the new form of term deposit, leading to confident and informed consumers,’ ASIC Commissioner, Dr Peter Boxall, said.
Download Consultation Paper 169 Term deposits that are only breakable on 31 days' notice: Proposals for relief (CP 169)
Comments on the consultation paper are due by 23 December 2011.
Background
The definition of basic deposit product in section 761A of the Corporations Act does not specify the period of notice that an ADI may require a depositor to give in order to make an early withdrawal from a term deposit of up to two years (except for the special provision for mutuals contained in reg 7.1.03A of the Corporations Regulations 2001).
Given that a minimum notice period of 31 days would be required for term deposits to gain recognition under the Basel III liquidity standards, there is potential regulatory uncertainty about whether such term deposits would satisfy the basic deposit product definition without some form of relief provided by ASIC.