This is the second part of a blog series titled 'Sleepers
Wake' about the regulation of religious charitable development
funds. Read the first blog here.
In its discussion paper, APRA stated that there were 59
Religious Charitable Development Funds (RCDFs) in Australia holding
over $7 billion in funds. Of those funds, $1.1 billion was raised
from individuals. APRA initially proposed that RCDFs that raise
retail deposits be required to register as an RFC, obtain
authorisation as an ADI or become a managed investment scheme. In
response to submissions received on this proposal, APRA
substantially amended its position and now proposes amendments that
preserve the existing exemptions for existing participants but with
greater limitations on the products RCDFs can offer.
RCDFs are financial services providers because they deal in, and
give financial advice about, investment products. As such, they
would ordinarily require an Australian Financial Services Licence
(AFSL). However, ASIC exempts RCDFs from most of the AFSL regime on
the rationale that investors participate in these products
predominantly out of a desire to support the relevant charity
rather than generate financial returns for themselves. ASIC's
consultation paper raised two options: removal of the existing
class order exemption; and retention of the existing exemptions
with additional conditions of relief. The paper proposed an
implementation timeline from early 2014 but ASIC has not published
anything further since the initial paper. It will be disappointing
if APRA proceed without ASIC's involvement as their roles are
intertwined and complementary.
In APRA's response to submissions2, it accepted
that the administrative costs of its initial proposal were higher
than it had presumed and it therefore proposes preserving the
existing exemption arrangements with additional conditions that
prevent an RCDF from offering any "at call" product. APRA
believes "at call" products can be readily misunderstood
by investors due to the high profile of transactional "at
call" accounts offered by banks.
Under these new requirements:
A retail account offered by an RCDF must have a minimum
maturity date of 31 days. Accounts without a specified maturity
must impose a 31 day notice period prior to any withdrawal (subject
to provision for early release in the case of hardship);
RCDFs may no longer offer bill payment services such as BPAY to
Use of the terms "deposit" and "at call"
would be prohibited, being too closely associated with bank
Further, no new exemptions will be granted. In future, religious
or charitable entities that wish to accept funds from retail
investors, but do not wish to seek authorisation as an ADI, will
need to register as a managed investment scheme (MIS) or RFC. This
two-speed approach raises interesting questions for how the sector,
small as it is, will develop in coming years. Will existing exempt
entities leverage their services under outsourcing arrangements to
new players? How will customers seeking to invest in their chosen
charity perceive a regulated entity in comparison to a less
regulated one? How will the products offered by these entities
evolve in light of changing and two-tier regulation?
2: Response to Submissions, Religious
Charitable Development Funds August 2013, Australian Prudential
Regulation Authority August 2013.
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.
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