Religious Charitable Development Funds are a category of Charitable Fund Raisers, outside the banking regime. They are regulated by the Australian Securities & Investment Commission (ASIC) and the Australian Prudential Regulatory Authority (APRA).

Charitable Development Funds (CDFs) operated by Diocese throughout Australia fall into this category. They collect deposits from stakeholders and lend back for the work of those Diocese for the purpose of funding projects for church buildings, parish facilities, school buildings, hospitals and retirement villages and nursing homes.

The CDFs enjoy certain exemptions from the usual regulations imposed by ASIC and APRA.

In May ASIC issued a consultation paper for response by CDFs 15 July 2013. The consultation paper can be found here.

There is a move to close the ASIC and APRA exemptions. This has been prompted by failures of other finance corporations, but it is useful to point out the distinctions between such corporations and CDFs. For example, CDFs:

  1. have no shareholders
  2. are not-for-profit entities
  3. do not lend to the public, business or property developers
  4. only lend to parishes, schools and associated church entities which have reliable cash flows
  5. are risk averse and hold assets predominantly in cash and fixed interest investments with approve deposit institutions (mainly banks)
  6. are clearly named and branded to identify their connection with their relevant church affiliates
  7. do not on-lend any funds in accumulated reserves to other financiers

There will be significant losses felt by Diocese across Australia if certain CDF operations are altered because profit made on the difference between interest paid on the deposits and interest collected on loans is always utilised in the ongoing works of a Diocese. If those works are not paid for from Diocesan funds, they will fall to government, or be discontinued.

A major concern of APRA and ASIC is the appeal that CDFs have for "lay" or "retail" depositors. This has been highlighted by competitive marketing which some CDFs have conducted. APRA and ASIC are concerned that retail or lay depositors assume that a CDF is as secure as a bank.

In response, CDF managers would say, a big motivation for a lay person to deposit funds with a CDF is to promote the charitable work of the Diocese.

Some submissions for reform which have been made on behalf of Catholic CDF's are:

  1. to impose additional conditions on their lending
  2. to market only to parish school or church community
  3. not to make any comparisons with other financial institutions
  4. to only apply lay persons' deposits towards financing capital works of the church or towards investments in approved deposit institutions
  5. to have lay depositors acknowledge in writing that their investment is not government guaranteed
  6. to remove the word "deposit" from CDF documentation and replace it with something in the nature of "investment" or "loan"

CDFs will be hoping ASIC and APRA will accommodate their submissions and not impose any further conditions or prohibit use of the CDFs by lay or "retail" customers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.