Compliance: Theory and Practice in the Financial Services Industry

11A. Deposit Products and Non-Cash Payment Facilities

Inhouse Home Compliance Course Visit the Library

IMPORTANT NOTE: These slides have been provided primarily for the use and benefit of students taking the "Compliance: Theory and Practice in the Financial Services Industry" course at Sydney University Law School. They are a summary only of the subject matter covered and are not intended to be, nor should they be relied upon as, a substitute for legal or other professional advice. In particular, it should be noted that the slides are not always verbatim quotes from the underlying source material and that material may have been abridged or paraphrased for presentational purposes. There also may have been legislative, regulatory or other developments since these slides were last updated that are not incorporated.

These slides are made available without the assumption of a duty of care by Inhouse Legal Solutions Pty Limited ("ILS") or the officers, employees or agents of ILS who were involved in their preparation and without any representation or warranty as to accuracy or completeness. Your use of these slides is subject to the terms and conditions set out on our Legal Notices page.

These slides were created with Microsoft FrontPage 2002 and are best viewed with Internet Explorer 6.0+.


Outline

   Definitions
   Banking Act
   Financial Sector (Collection of Data) Act
   Licensing and Disclosure Requirements
   Relaxation of FSR Rules for Basic Deposit Products and Related Non-Cash Payment Facilities
   Industry Codes of Practice

 


Definitions

CA s764A(1) - Things that are Financial Products
Subject to subdivision D (s765A), the following are financial products for the purposes of Chapter 7: ...
(i)   any deposit-taking facility made available by an ADI (within the meaning of the Banking Act 1959) in the course of its banking business (within the meaning of that Act), other than an RSA (RSAs are covered by s764A(1)(h)).

See below for the Banking Act definitions of "ADI" and "banking business".

CA s763A(1) - General Definition of Financial Product
A financial product is a facility through which, or through the acquisition of which, a person ...
(c)  makes non-cash payments (s763D).

 

CA s761A - Definition of Deposit Product
Deposit product = a financial product described in s764A(1)(i).

 

CA s761A – Definition of Basic Deposit Product
Basic deposit product = a deposit product satisfying the following conditions:
(a)   the governing terms do not permit the amount from time to time standing to the credit of the facility to be reduced except for:
  (i)   a withdrawal, transfer or debit on the instruction of, or by authority of, the depositor, not being on account of entry fees, exit fees or charges for the management of the funds (but this does not exclude charges for the maintenance of the facility itself);
  (ii)   a payment of charges or duties on deposits into, or withdrawals from, the facility that are payable under a law of the Commonwealth or of a State or Territory;
  (iii)   a payment that a law of the Commonwealth, or of a State or Territory, requires to be made out of the facility;
  (iv)   a payment that an order of a court requires to be made out of the facility;
  (v)   the exercise of a right to combine accounts;
  (vi)   the correction of an error;
  (vii)   any other circumstances specified in regulations made for these purposes;
(b)   any return to be generated for the depositor on the amount from time to time standing to the credit of the facility is an amount that is set out in, or that is calculated by reference to a rate or rates that are set out in, the governing terms;
(c)   either:
  (i)   there is no minimum period before which funds cannot be withdrawn or transferred from the facility without a reduction in the return generated for the depositor; or
  (ii)   if there is such a period, it expires on or before the end of the period of 5 years starting on the day on which funds were first deposited in the facility;
(d)   unless (c)(ii) applies and the period referred to in that subparagraph expires on or before the end of the period of 2 years starting on the day on which funds were first deposited in the facility - funds are able to be withdrawn or transferred from the facility on the instruction of, or by authority of, the depositor:
  (i)   without any prior notice to the ADI that makes the facility available; or
  (ii)   if the ADI that makes the facility available is included in a class of ADIs specified in regulations made for these purposes - subject to a prior notice requirement that does not exceed the period specified in those regulations in relation to that class of ADIs;
  whether or not the withdrawal or transfer will attract a reduction in the return generated for the depositor as mentioned in (c)(i);
(da)  the facility is not an FHSA product; and
(e)   any other conditions specified in regulations made for these purposes.

For (d)(ii), CR r7.1.03A prescribes 7 days as the maximum notice period for building societies and credit unions, societies and co-operatives.

CA s763D - Making Non-cash Payments
A person makes non-cash payments if they make payments, or cause payments to be made, otherwise than by the physical delivery of Australian or foreign currency in the form of notes and/or coins. This does not apply, however, if:
(a)   there is only one person to whom payments can be made by means of the facility or the facility is, or is of a kind, specified in the regulations as being a facility that is not to be covered by this section because of restrictions relating to the number of people to whom payments can be made by means of the facility, or relating to the number of persons who can use the facility to make payments; or
(b)   making payments by means of a letter of credit from, a cheque drawn by and on, or a guarantee given by, a financial institution.

The notes to s763D give as examples of actions that constitute making non-cash payments the making of payments by means of: (1) a facility for direct debit of a deposit account; (2) a facility for the use of cheques; (3) a purchased payment facility such as a smart card; and (4) travellers cheques.

Pure money changing transactions are taken outside the definition of a non-cash payment facility by the exclusion of payments involving the physical delivery of Australian or foreign currency in the form of notes and/or coins. They are also specifically excluded from the definition of "financial product" by the exclusion in s765A(1)(m) for contracts to exchange one currency for another that are settled immediately.

Paragraph (a) above is intended to cover facilities that only facilitate the payment to a single person, such as store cards (to the extent that they are not credit cards and already outside the regime for financial services) and phone cards. These type of single payee non-cash payment facilities were excluded from the FSR regulatory regime as it was considered that any consumer risk to which they might give rise could be dealt with adequately under the general consumer protection provisions in Division 2 of Part 2 of the ASIC Act. There are currently no regulations expanding this exclusion to other payment facilities.

By virtue of regulations made under CA s765A(1)(y), the following non-cash payment facilities are deemed not to be financial products: bank drafts (7.1.07B), money orders (7.1.07F), and electronic funds transfers by ADIs and operators of payment systems (eg telegraphic transfers and international money transfers offered by banks and remittance dealers - r7.1.07G).

CA s765A also excludes from the operation of s763D an "approved RTGS system" within the meaning of the Payment Systems and Netting Act 1998 and a "designated payment system" for the purposes of the Payment Systems (Regulation) Act 1998 (s765A(1)(i) and (j)), a facility for the exchange and settlement of non-cash payments between providers of non-cash payment facilities (s765A(1)(k)) and financial markets, clearing and settlement facilities and derivative trade repositories (s765A(1)(l)).

See generally ASIC Regulatory Guide 185 Non-cash payment facilities.

Return to Outline


Banking Act

BA s5 - Definitions
ADI or authorised deposit-taking institution = a body corporate in relation to which an authority under s9(3) of the Banking Act is in force.
Banking business means:
(a)   a business that consists of banking within the meaning of s51(xiii) of the Constitution; or
(b)   a business that is carried on by a corporation to which s51(xx) of the Constitution applies and that consists, to any extent, of:
  (i)   both taking money on deposit (otherwise than as part-payment for identified goods or services) and making advances of money; or
  (ii)   other financial activities prescribed by the regulations for the purposes of this definition.

Click here for a copy of the Banking Act 1959.

The scope of the Federal Parliament's legislative powers with respect to "banking" under s51(xiii) of the Constitution was considered by the High Court in the Bank Nationalisation Case (Bank of NSW v The Commonwealth [1948] HCA 7; (1948) 76 CLR 1). Latham CJ said (at p193-4):

    

"In order to be a banker a man must "hold himself out as a banker and the public take him as such": Stafford v. Henry (1850) 12 Ir Eq R 400. If a man carries on other businesses besides that of banking, and if the banking is only subsidiary to the other businesses, he cannot be regarded as a banker: Re Shields' Estate (1901) IR Ch 172, at p 199.

    

Banking began with the receipt of money subject to an obligation to make money available to or according to the directions of the depositor. An establishment which does not deal in money (using the term "money" to include legal tender and all forms of generally acceptable credit) as a regular business and as its principal business would not be called a bank. An establishment which did not deal with money belonging to other persons would not be called a bank.

    

The essential nature of the relations between banker and customer was most clearly defined in Foley v. Hill (1848) 2 HLC 28 (9 ER 1002) where it was held that a bank which receives the money of a depositor becomes the debtor of a depositor "with a superadded obligation arising out of the custom of bankers to honour the customer's drafts": see Attorney-General for Canada v. Attorney-General for Quebec (1947) AC, at p 44. The conduct of business upon this basis is the central and distinctive feature of banking. Without it, in my opinion, there can be no banking. Banking also includes the lending of money upon or without security if such lending is associated with the business which I have specified. Money lending not so associated is not banking: see Halsbury, Laws of England, 2nd ed., vol. 1, p. 782: - "A 'banker' is an individual, partnership, or corporation, whose sole or predominating business is banking, that is the receipt of money on current or deposit account and the payment and collection of cheques, drawn by or paid in by a customer." It also includes "the business of making of advances or the granting of overdrafts to customers."

Dixon J said (at p334):

    

"To give an inclusive and exclusive definition of such a conception as banking is almost impossible. Dr. Walter Leaf begins his little book on the subject by saying that it is quite impossible; that the theory and practice of banking have varied from age to age and still vary from country to country. He does, however, bring himself to give a definition of English banking and defines a bank in terms of its deposit business, saying that a bank is a person or corporation which holds itself out to receive from the public deposits payable on demand by cheque."

The Banking Regulations 2016 r6 prescribes certain widely based purchased payment facilities (ie stored value cards) to be "banking business".

 

BA s7(1) – Must be Body Corporate to Carry on Banking Business
A person is guilty of an offence if:
(a)   the person carries on any banking business in Australia;
(b)   the person is not a body corporate; and
(c)   there is no determination in force under s11 that this subsection does not apply to the person.

The penalty for breaching s7(1) is a daily penalty of 200 penalty units.

BA s11 empowers APRA to make a written determination that various provisions of the Banking Act (including ss7, 8, 9 and 67) do not apply to a person during the period while the determination continues in force.

BA s8(1) – Authority Needed to Carry on Banking Business
A body corporate is guilty of an offence if:
(a)   the body corporate carries on any banking business in Australia;
(b)   the body corporate is not the Reserve Bank;
(c)   the body corporate is not an ADI; and
(d)   there is no determination in force under s11 that this subsection does not apply to the body corporate.

The penalty for breaching s8(1) is a daily penalty of 200 penalty units.

BA s9 provides a regime for bodies corporate to apply for an authority to carry on banking business in Australia. If granted, the applicant is given an authority to carry on banking business under s9(3), and by definition becomes an ADI. ADIs include banks, building societies and credit unions.

Under BA s9(3A), APRA may refuse an application by a body corporate for authority to carry on banking business in Australia if the body corporate is a subsidiary of a non-operating holding company ("NOHC") that does not hold a NOHC authority. There is a separate regime for the granting of such authorities in s11AA.

BA s11AF(1) – Prudential Standards
APRA may, in writing, determine standards in relation to prudential matters to be complied with by:
(a)  all ADIs;
(b)  all authorised NOHCs; or
(c)  a specified class of ADIs or authorised NOHCs; or
(d)  one or more specified ADIs or authorised NOHCs.

 

BA s67(1) – Representative Offices of Foreign Banks
A person, other than an ADI, is guilty of an offence if:
(a)   the person carries on banking business in a foreign country but does not carry on banking business in Australia;
(b)   the person establishes or maintains an office in Australia wholly or partly in connection with the carrying on of that banking business in that foreign country;
(c)   APRA did not consent, in writing, to the establishment or maintenance of that office; and
(d)   there is no determination in force under s11 that this subsection does not apply to the person.

The penalty for breaching s67(1) is a daily penalty of 50 penalty units. APRA has published Guidelines on being authorised as a representative office of a foreign bank.

Return to Outline


Financial Sector (Collection of Data) Act

FS(CD)A s3 - Object of Act
(1)   The object of this Act is to enable APRA to collect information for the purposes of:
  (a)   assisting APRA in the prudential regulation or monitoring of bodies in the financial sector;
  (aa)   enabling APRA to publish information given by financial sector entities;
  (b)   assisting another financial sector agency to perform its functions or exercise its powers; and
  (c)   assisting the Minister to formulate financial policy.
  (d)   reporting amounts for the purposes of the Major Bank Levy Act 2017.
(2)   In order to achieve that object, this Act:
  (a)   provides for certain corporations to be registered, and divided into categories, by APRA; and
  (b)   authorises APRA to determine reporting standards for corporations that are so registered and for certain other bodies that it regulates or monitors and to require them to provide APRA with information about their businesses and activities.

Click here for a copy of the Financial Sector (Collection of Data) Act 2001.

FS(CD)A s5 - Entities Covered by Act
(1)   This Act deals with financial sector entities.
(2)   A financial sector entity is:
  (a)   a registered entity;
  (b)   a regulated entity;
  (c)   a corporation to which s5A applies;
  (d)   a discretionary mutual fund;
  (e)   a person who provides a financial service (within the meaning of CA s766A) not referred to in (a)-(d) above; or
  (f)   a person who is a participant in a payment system (within the meaning of s7 of the Payment Systems (Regulation) Act 1998) not referred to in (a)-(d) above.
(3)   A registered entity is a corporation whose name is entered in the Register of Entities kept by APRA under s8.
(4)   A regulated entity is any of the following:
  (a)   a body regulated by APRA (within the meaning of s3(2) of the Australian Prudential Regulation Authority Act 1998);
  (b)   a subsidiary of an ADI, or a subsidiary of an authorised NOHC, within the meaning of the Banking Act 1959.

Under FS(CD)A s9, "registrable corporations" are required to be registered under s8, thereby becoming "registered entities" under (2)(a) and (3) above.

Under FS(CD)A s7(1), a corporation is a registrable corporation if, and only if, the corporation is a foreign corporation, a trading corporation formed within the limits of Australia or a financial corporation so formed and: (a) the sole or principal business activities in Australia of the corporation are the borrowing of money and the provision of finance; or (b) the sum of the values of such of the assets in Australia of the corporation as consist of debts due to the corporation, being debts resulting from transactions entered into in the course of the provision of finance by the corporation, exceeds 50% (or such other percentage as is prescribed in the Regulations) of the sum of the values of all the assets in Australia of the corporation; or (c) the corporation engages in the provision of finance in the course of carrying on in Australia a business (whether or not that business is its sole or principal business) of selling goods by retail and the sum of the values of such of the assets of the corporation and of any corporation that is related to the corporation as consist of debts due to the corporation concerned, being debts resulting from transactions entered into in the course of the provision of finance by that corporation, exceeds $25,000,000 (or such other amount as is prescribed in the Regulations).

Under FS(CD)A s7(2), certain corporations are excluded from being registrable corporations notwithstanding that they otherwise may fall within s7(1). These include ADIs, life insurers and general insurers (who are separately caught as "regulated entities" within (2)(b) and (4) above rather than as "registered entities").

In relation to (2)(c) above, FS(CD)A s5A applies to certain medical indemnity entities and is not relevant for our purposes.

For the purposes of (4)(a) above, under s3(2) of the APRA Act, each of the following is a body regulated by APRA: (a) an ADI, within the meaning of the Banking Act 1959; (b) an authorised NOHC, within the meaning of the Banking Act 1959; (c) a general insurer, authorised NOHC or subsidiary of a general insurer or authorised NOHC, within the meaning of the Insurance Act 1973; (d) Lloyd's, or a Lloyd's underwriter, as defined in section 3 of the Insurance Act 1973; (e) a life company that is registered under section 21 of the Life Insurance Act 1995 or a registered NOHC within the meaning of that Act; (ea) a private health insurer, within the meaning of the Private Health Insurance (Prudential Supervision) Act 2015; (f) the trustee of a superannuation entity, within the meaning of the Superannuation Industry (Supervision) Act 1993; and (g) an RSA provider, within the meaning of the Retirement Savings Accounts Act 1997.

Return to Outline


Licensing and Disclosure Requirements

Licensing and Disclosure Requirements
•     Persons who carry on a business of advising on or issuing deposit products need a financial services licence authorising them to provide that service or to be an authorised representative of such a licensee.
•     Subject to certain concessions for basic deposit products and related non-cash payment facilities (see below), if they deal with retail clients, they need:
  •     Financial Services Guide
  •     Statement of Advice for any advice given
  •     Product Disclosure Statement for any products recommended
  •     To act in the best interests of the client when giving personal advice
  •     To warn if giving personal advice based on incomplete or inaccurate information or if giving general advice
  •     Dispute resolution systems
  •     Compensation arrangements

Note that the obligation to give priority to a client's interests in s961J and the restriction on conflicted remuneration in s963E do not apply if the subject matter of the advice sought by the client is solely a "basic banking product" and the adviser is an agent or employee of an Australian ADI or otherwise acting by arrangement with an Australian ADI under the name of the Australian ADI (s961J(2), s963D and r7.7A.12H). Also, the obligation in s961B for an adviser to act in the client's best interests is scaled down for "basic banking products" where the adviser is an agent or employee of an Australian ADI, or otherwise acting by arrangement with an Australian ADI under the name of the Australian ADI - the adviser only has to take the steps mentioned in s961B(2)(a)-(c), and does not have to take the steps mentioned in s962B(2)(d)-(g), to satisfy the best interests obligation (s961B(3)). "Basic banking products" include basic deposit products and facilities for making non‑cash payments that are related to a basic deposit product (s961F).

Return to Outline


Relaxation of FSR Rules for Basic Deposit Products and Related Non-Cash Payment Facilities

Note that a number of the exemptions or modifications below only operate in respect of basic deposit products and non-cash payment facilities that are related to a basic deposit product. If you intend to rely on one of these exemptions or modifications in relation to a deposit product or a non-cash payment facility related to a basic deposit product, it is therefore important that you double-check that the relevant deposit product satisfies all of the requirements in the definition of "basic deposit product" in s761A (see above) or you otherwise fit within the exemption or modification.

CA s911B(1)(c) – No Need for Separate Authority for Employees of Approved Reps
A person (the provider) must only provide a financial service in this jurisdiction on behalf of another person (the principal) who carries on a financial services business if one or more of the following paragraphs apply: …
(c)   these conditions are satisfied:
  (i)   the principal holds an Australian financial services licence covering the provision of the service;
  (ii)   the provider is an employee of an authorised representative of the principal;
  (iii)   the authorisation covers the provision of the service by the authorised representative; and
  (iv)   the service is the provision of a basic deposit product or of a facility for making non-cash payments that is related to a basic deposit product, or is the provision of a financial product of a kind prescribed by regulations for these purposes.

The effect of this provision is that employees of representatives authorised to provide services in relation to basic deposit products or related non-cash payment facilities need not be separately authorised under s916B.

If they are separately authorised under s916B, then there is no need to give ASIC notice of their authorisation under s916F (s916F(1AA), as modified by CR r7.6.08(3)).

CR r7.6.01A prescribes travellers' cheques for the purposes of (iv) above.

CA s941C(6) and (7) – No Need for FSG
The providing entity does not have to give the client an FSG if the financial service is a dealing in, advice about, or in any way relates to, any of the following:
(a)   a basic deposit product;
(b)   a facility for making non-cash payments that is related to a basic deposit product;
(c)   a financial product of a kind prescribed by regulations for these purposes,
provided that before the service is provided, the client is instead given the information that would be required to be in the FSG by ss942B(2)(a) and (h), or ss942C(2)(a) and (i), as the case requires.

The requirement for an FSG is removed in recognition of the fact that consumers generally understand the nature of basic deposit products and therefore do not require extensive disclosure in relation to such financial products. However, if the exception applies, the client must be given the information that would normally be included in an FSG under ss942B(2)(a) and (h), or ss942C(2)(a) and (i), as the case requires. These latter sections require disclosure of the name and contact details of the providing entity and information about its dispute resolution system. This information can be given orally (s940C(2)(a)).

CR r7.7.02(1) prescribes for the purposes of (c) above, deposit products for which: (i) there is no minimum period before which funds cannot be withdrawn or transferred from the facility without a reduction in the return generated for the depositor; or (ii) if there is such a period, it expires on or before the end of the period of 2 years starting on the day on which funds were first deposited in the facility. It also prescribes travellers' cheques, interests in cash management trusts and capital guaranteed FHSA products.

CR r7.7.05C provides that an FSG for a service to which s941C(6) applies does not have to include the information about the types of services provided or about remuneration and other benefits that ss942B(2)(c) or (e) and 943C(2)(d) or (f) would otherwise require to be included in relation to that service.

CR r7.7.08A also permits a combined FSG and PDS to be issued as a single document if the providing entity for the financial service is a representative or a related body corporate of the product issuer and the product is a basic deposit product, a non-cash payment facility that is related to a basic deposit product or certain insurance products. However, the regulation does not apply if the PDS is for an FHSA product (r7.7.08A(1A)).

CA s946B(5) and (6) – No Need for SOA
The providing entity does not have to give the client an SOA if the advice relates to any or all of the following:
(a)   a basic deposit product;
(b)   a facility for making non-cash payments that is related to a basic deposit product;
(c)   a financial product of a kind prescribed by regulations for these purposes,
provided that when, or as soon as practicable after, the advice is provided, the client is instead given the information that would be required to be in the SOA by ss947B(2)(d) and (e), or ss947C(2)(e) and (f), as the case requires.

Note that s946B has been replaced by CR r7.7.10AE, although the provisions applicable to basic deposit products and related non-cash payment facilities remain the same.

Again, the requirement for an SOA is removed in recognition of the fact that consumers generally understand the nature of basic deposit products and therefore do not require extensive advice in relation to such financial products. However, if the exception applies, the client must be given the information that would normally be included in an SOA under ss947B(2)(d) and (e), or ss947C(2)(e) and (f), as the case requires. These latter sections require disclosure of information about remuneration and any interests, associations or relationships between the providing entity or an associate and a product issuer that might reasonably be expected or be capable of influencing the providing entity in providing the advice. This information can be given orally (s940C(2)(a)).

CR r7.7.10 prescribes for the purposes of (c) above, deposit products for which: (i) there is no minimum period before which funds cannot be withdrawn or transferred from the facility without a reduction in the return generated for the depositor; or (ii) if there is such a period, it expires on or before the end of the period of 2 years starting on the day on which funds were first deposited in the facility. It also prescribes travellers' cheques, interests in cash management trusts, various general insurance products and capital guaranteed FHSA products.

Investments of $15,000 or less in any deposit product, including one that is not a basic deposit product or one that falls within r7.7.10, qualify for the small investment relief in s946AA(1A) and therefore only require a record of advice rather than a full blown SOA.

CR r7.9.07FA – No Need for PDS
In a recommendation situation, an issue situation or a sale situation, the regulated person does not have to give the client a PDS for a financial product if:
(a)   the product is:
  (i)   a basic deposit product;
  (ii)   a facility for making non-cash payments that is related to a basic deposit product; or
  (iii)   a travellers' cheque;
(b)   the regulated person has provided information about the cost of the product (if any) to the client;
(c)   the regulated person has informed the client as to whether or not any amounts will or may be payable by the holder of the product, in respect of the product, after its acquisition;
(ca)  

if the product is a protected account under the Banking Act 1959 — the regulated person has informed the client that:

  (i)   the account-holder may be entitled to payment under the financial claims scheme;
  (ii)   payments under the scheme are subject to a limit for each depositor; and
  (iii)   information about the financial claims scheme can be obtained from the APRA website at http://www.apra.gov.au and the APRA hotline on 1300 13 10 60;
(d)   the regulated person has asked the client whether or not the client would like further information about the amounts mentioned in (c); and
(e)   if the client indicates that the client would like the further information mentioned in (d) - the regulated person has provided that information.

 

CA s961B(3) – Relaxation of Best Interest Obligation
If:
•     the person providing personal advice to a retail client (adviser) is an agent or employee of an Australian ADI or otherwise acting by arrangement with an Australian ADI under the name of the Australian ADI; and
•     the subject matter of the advice sought by the client relates only to a basic banking product, a general insurance product, consumer credit insurance or a combination of any of those products,
the adviser satisfies the "best interest" duty in s961B(1) in relation to the advice given in relation to the basic banking product and the general insurance product if the provider takes the steps mentioned in s961B(2)(a), (b) and (c).

In other words, the adviser merely has to: (a) identify the objectives, financial situation and needs of the client that were disclosed to the provider by the client through instructions; (b) identify the subject matter of the advice that has been sought by the client (whether explicitly or implicitly) and the client's "relevant circumstances"; and (c) where it was reasonably apparent that information relating to the client's relevant circumstances was incomplete or inaccurate, make reasonable inquiries to obtain complete and accurate information. The adviser does not have to do the other steps in s961B(2)(d)-(g).

For these purposes, "basic banking product" includes basic deposit products, facilities for making non‑cash payments, traveller's cheques and any other product prescribed by the regulations for these purposes (s961F).

CA s961J(2) – Relaxation of Obligation to Prioritise Clients Interests
If:
•     the person providing personal advice to a retail client (adviser) is an agent or employee of an Australian ADI or otherwise acting by arrangement with an Australian ADI under the name of the Australian ADI; and
•     the subject matter of the advice sought by the client relates only to a basic banking product, a general insurance product, consumer credit insurance or a combination of any of those products,
the duty to give priority to the client's interests in s961J(1) does not apply to the extent that the advice relates to a basic banking product or a general insurance product or a combination of those 2 products.

Again, for these purposes, "basic banking product" includes basic deposit products, facilities for making non‑cash payments, traveller's cheques and any other product prescribed by the regulations for these purposes (s961F).

CA s963D – Relaxation of Conflicted Remuneration Rules
If:
•     a monetary or non‑monetary benefit is given to a financial services licensee or a representative of a financial services licensee;
•     the benefit is in whole or in part remuneration for work carried out, or to be carried out, by the licensee or representative as an agent or employee of an Australian ADI or in otherwise acting by arrangement with an Australian ADI under the name of the Australian ADI;
•     access to the benefit, or the amount of the benefit, is in whole or in part dependent on the licensee or representative recommending a basic banking product, a general insurance product or consumer credit insurance; and
•     the licensee or representative does not, in the course of recommending any, or any combination, of those products give other financial product advice that does not relate to any of those products,
to the extent that the benefit relates to the recommendation of any, or any combination of, the products mentioned above, the benefit is not conflicted remuneration.

This is reinforced by r7.7A.12H which provides that a benefit is not conflicted remuneration if: (a) to the extent that the benefit is given in relation to financial product advice, the benefit only relates to a basic banking product, a general insurance product, consumer credit insurance or a combination of any of those products; (b) the provider does not, at the same time, provide advice about any other financial products; and (c) the provider is an agent or an employee of an Australian ADI or otherwise acting by arrangement with an Australian ADI under the name of the Australian ADI.

CR r7.9.71A - Periodic Statements not Required for Passbook Accounts
A basic deposit product (an account) for which the holder of the product is provided with, and keeps, a document commonly referred to as a ‘passbook’ is exempt from s1017D of the Act if, under the terms of the operation of the account:
(a)   the client has a right to a reasonable opportunity to present the passbook to the issuer;
(b)   the issuer enters particulars of each transaction involving the account including the amount of the transaction and the current balance of the account; and
(c)   there is no fee associated with the passbook or the entry of particulars into the passbook.

 

CA s1017F(4)(c) – Confirmations Not Required for Certain Debits and Credits
In the case of a deposit product, none of the following transactions requires a confirmation:
(i)   a withdrawal from the deposit product pursuant to a cheque drawn on the account;
(ii)   a deposit to, or withdrawal from, the deposit product under a direct credit arrangement or a direct debit arrangement;
(iii)   crediting interest to the deposit product;
(iv)   debiting the deposit product for fees or charges in respect of the product or transactions involving the product;
(v)   debiting the deposit product for charges or duties on deposits into, or withdrawals from, the product that are payable under a law of the Commonwealth or of a State or Territory;
(vi)   a transaction of a kind specified in regulations made for these purposes.

Note that s1017F applies to all deposit products, not just basic deposit products.

CR r7.9.62(3)(c) and (d) - Confirmations Not Required if Statement Given
Confirmations are not required for debits from or credits to a basic deposit product ... if:
(i)   the holder of the product has been given a periodic statement under s1017D not later than 6 months after the transaction occurs; and
(ii)   the periodic statement contains the information about the transaction that is required by s1017D.

Under the Banking Code of Practice and the Mutual Banking Code of Practice, ADIs are required to give regular account statements at least every 6 months and more frequently if requested by the customer. So the practical effect of this Regulation, combined with industry practice, is that ADIs will not need to issue confirmations for basic deposit products.

CR r7.9.62(5) provides that a debit from a basic deposit product made in these circumstances that involves the use of a linked facility for making non-cash payments does not require a confirmation and CR r7.9.62(6) provides that a credit to a credit facility that involves the use of a linked facility for making non-cash payments similarly does not require a confirmation.

ASIC Regulatory Guide 146 - Reduced Training Requirements for Advisers
•     Persons who advise on basic deposit products or non-cash payment facilities that are related to basic deposit products only require Tier 2 training.
•     The courses undertaken don't have to be approved by an authorised assessor or listed on the ASIC Training Register and instead can be self-assessed for appropriateness by the licensee as meeting the Tier 2 educational level.

ASIC Regulatory Guide 146 Licensing: Training of financial product advisers para 119 states: "Where a course on basic deposit products and related non-cash payment products ... is assessed by the licensee rather than an authorised assessor, the role of the licensee is to: (a) benchmark their own training courses against our knowledge and skill requirements; (b) examine their own processes and procedures to assess whether the courses can successfully meet the training standards; and (c) upon completion of the course, assess an individual adviser against the training standards."

CR r7.8.12 also requires licensees to maintain somewhat less detailed financial records in relation to basic deposit products, compared to other financial products.

Return to Outline


Industry Codes of Practice

Industry Codes of Practice
•     Code of Banking Practice - a "voluntary" code of conduct which sets standards of good banking practice for banks to follow when dealing with individual and small business customers and their guarantors.
•     Customer Owned Banking Code of Practice - prescribes standards for credit unions, mutual building societies and mutual banks when dealing with members, customers and guarantors who are individuals or small businesses.
•     ePayments Code - covers electronic payments (including ATM, EFTPOS and credit card transactions), online payments, internet and mobile banking, and BPAY.

Clause 4.2 of the Code of Banking Practice contains a commitment by participating banks that "[i]f this Code imposes an obligation on us, in addition to obligations applying under a relevant law, we will also comply with this Code except where doing so would lead to a breach of a law (for example, a privacy law)". Clause 12.3 further provides that any written terms and conditions for banking services "will include a statement to the effect that the relevant provisions of this Code apply to the banking service".

The introduction to the Mutual Banking Code of Practice contains an undertaking by participating building societies and credit unions "to comply with this Code in our dealings with you. We will incorporate this Code by reference in our written Terms and Conditions for products and facilities to which the Code applies."

Clauses 4.1 and 4.2 of the ePayments Code requires subscribers to prepare clear and unambiguous terms and conditions for facilities, which: (a) reflect the requirements of the Code; (b) do not impose liability or responsibilities on users that exceed their liability and responsibilities under the Code; and (c) warrant that the subscriber will comply with the Code.

In Sam Management Services (Aust) Pty Ltd v Bank of Western Australia Ltd [2009] NSWCA 320, the New South Wales Court of Appeal had occasion to comment on the effect of incorporating the Code of Banking Practice into banking contracts. In that case, the appellant had argued that the respondent bank had breached its obligations under clause 2.2 of the version of the Code applicable at the time requiring that banks "act fairly and reasonably towards [customers] in a consistent and ethical manner" by failing to release some security when some of its facilities were repaid. The court at first instance and on appeal found that the bank had not acted unreasonably and therefore had not breached the Code. Young JA observed (at 72-75):

    

"This appeal has been made viable because of the inclusion in the contract between the parties of the Code of Banking Practice, a document which was probably never prepared by its drafters to form part of a legal document. It is drafted as a lay person's document to be understood in a quick reading by a person considering dealing with the bank. It thus lacks the precision that one would expect in a term to be included in a contract dealing with megadollars.

    

The relevant clause in the Code of Practice is 2.2 which provides:-

    

    

"we will act fairly and reasonably towards you in a consistent and ethical manner. In so doing we will consider your conduct, our conduct and the contract before [sic between] us."

    

The clause in a legal document is so fraught with ambiguity. Its exact meaning was not canvassed before us so that it would be unwise to attempt to be definitive in its construction. Assuming it must be given some meaning in a commercial document, it probably does not operate to beyond requiring the bank to act in good faith towards the customer.

     However, the principal purpose of these remarks is to suggest to bankers that the cross reference in legal documents to their promotional material is likely to lead to complications in litigation."

Return to Outline


Copyright © 2002-2016 Inhouse Legal Solutions Pty Limited ABN 16 003 663 456.