APRA weakens on church funds

Ian Rogers
Little scrutinised deposit-taking entities, many of them run by churches, have succeeded in persuading the Australian Prudential Regulation Authority to soften a proposed clamp down on their sector.

At present, "religious charitable development funds" that undertake banking business are exempt from the need to be authorised as a deposit-taking institution and regulated by APRA.

APRA's original proposal was to withdraw the current exemption order for these funds when it comes to accepting investments from retail investors.

The regulator had proposed that an RCDF wishing to offer retail-type products would need to do so under an alternative regulatory regime, either as an authorised deposit-taking institution or a managed investment scheme.

APRA also proposed restrictions on the use of certain terms, including the words deposit and at-call, and on offering BPay facilities.

APRA has previously said it was "proposing requirements aimed at reducing the likelihood that an investor, and particularly a retail investor, in a [religious fund] would confuse such an investment with an ADI deposit or other deposit-like product."

The funds, in their lobbying, argued that alternative regimes "would be administratively burdensome and the associated costs would impede their religious and charitable activities", APRA said.

On the other hand, APRA said that it "remains of the view that unauthorised entities should not be able to offer deposit products or those with features and characteristics that are clearly associated with products offered by ADIs"

However, APRA now concedes that "many RCDFs have structured aspects of their religious and charitable operations in a manner that relies on funds from retail investors."

APRA said it was no longer proposing to withdraw the exemption orders and nor will it require the church funds to operate under an alternative regulatory regime.

Instead, it said that for funds "currently exempted APRA is proposing to extend the existing RCDF exemption order, but subject to additional conditions."

"Any product offered to a retail investor will have to have a minimum term or notice period of 31 days, and the use of [the] terms 'deposit' and 'at-call' will not be allowed in relation to retail products or in marketing to retail investors," it said.

APRA research has found there are 59 religious charitable development funds in Australia, and these are raising, in aggregate, more than A$7 billion in liabilities.

Of this, around $1.1 billion is sourced from individuals and $6.3 billion is sourced from entities comprising the denominational or other affiliates of each fund.