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Australia – Revised Policy On The Operation Of Foreign Banks.

30 September, 2013

 

Legal News & Analysis – Asia Pacific – Australia Banking & Finance

 

WHAT YOU NEED TO KNOW

 

  • APRA has clarified its policy on foreign banks operating in Australia and providing services to Australian customers and counterparties where the foreign bank is not an authorised ADI.
 

WHAT YOU NEED TO DO

 

  • A foreign bank which is not authorised as an ADI must limit its activities in Australia in accordance with APRA’s specified conditions.
 

Background


Under the Banking Act 1959 (Cth) (Banking Act), banks (including foreign banks) are required to be authorised by the Australian Prudential Regulation Authority (APRA) as authorised deposit-taking institutions (ADIs) in order to conduct banking business in Australia.


On 14 April 2011, APRA issued a letter (April 2011 Letter) outlining its approach to foreign banks operating in Australia that are not authorised by APRA as ADIs. The April 2011 Letter outlined a number of conditions and limitations to the foreign bank’s activities in Australia and with Australian customers and counterparties.


By its letter dated 19 September 2013 (September 2013 Letter), APRA issued further guidance on its position to foreign banks conducting business in Australia. It sought to clarify the conditions set out in the April 2011 Letter and also set out its revised position on the application of section 66 of the Banking Act which prohibits the use of certain restricted words such as “bank” to foreign banks.

 

Permitted Activity

 

In its April 2011 Letter, APRA outlined its approach to foreign banks conducting business with Australian counterparties from offshore offices or branches. APRA’s policy expectation was that foreign banks soliciting and operating an active business in Australia should be subject to Australian prudential regulation and supervision, regardless of where the business is booked.


However, APRA indicated that it would take a “no-objection position” in respect of a foreign bank conducting business with Australian counterparties from offshore offices in certain circumstances.


The September 2013 Letter has revised the conditions set out in the April 2011 Letter and APRA’s new position is that it would not object to a foreign bank conducting business with Australian counterparties from its offshore offices provided:

 

  • the foreign bank does not maintain an office or permanent staff in Australia, including staff employed by an entity within the banking group that conducts non-banking business on its behalf in Australia;
  • the foreign bank is not soliciting business from retail customers in Australia;
  • all business contracts and arrangements are clearly transacted and booked offshore;
  • the foreign bank does not engage in advertising or allow bank staff to physically solicit business in Australia; and
  • where offshore staff of the foreign bank meet with clients and potential clients in Australia, it is for the limited purpose of arranging or executing documentation in relation to the business of those clients.

 

Under these conditions, a foreign bank must not solicit business from retail customers in any manner, but it may advertise or engage in solicitation of wholesale clients from offshore.

 

Section 66 Of The Banking Act

 

Section 66 of the Banking Act prohibits a person from using the word “bank” in Australia in connection with a financial business carried on in Australia or elsewhere, without APRA’s consent.


APRA’s previous position in relation to the application of section 66 of the Banking Act to foreign banks under the April 2011 Letter was that the foreign bank was not permitted to use the word “bank” (including when that word appear in the bank’s name) in Australia, even if its activities fell within the categories of activity to which APRA did not object. That presented a challenge for foreign banks to even send transaction documents and administrative documents such as account statements to Australian customers and counterparties, even where the activities were permitted under APRA’s no objection position.


APRA has now changed its policy in respect of the application of section 66. The September 2013 Letter indicates that APRA would not consider that a foreign bank is in breach of section 66 if it uses a restricted word such as “bank”, including in its corporate name, when dealing with clients and counterparties in Australia, to the extent that the foreign bank conducts its business with Australian customers and counterparties under the prescribed conditions.


Under this new policy, APRA also would not consider that the foreign bank is in breach of section 66 where it uses the restricted words to register security interest over property in Australia under the Personal Property Securities Act 2009 (Cth).


This revised stance on the application of section 66 however does not extend to unlicensed foreign banks wishing to use a restricted word to register as a foreign company. In that situation, APRA would only provide an exemption for the limited activities of a representative office.


Accordingly, a foreign bank which is not an authorised ADI must also ensure its activities in Australia do not amount to “carrying on business in Australia” which would attract the requirement to register as a foreign company under Part 5B.2 of the Corporations Act 2000 (Cth).

 

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For further information, please contact:

 

Jonathan Gordon, Partner, Ashurst
jonathan.gordon@ashurst.com


Jamie Ng, Partner, Ashurst
jamie.ng@ashurst.com


Paul Jenkins, Partner, Ashurst
paul.jenkins@ashurst.com


Corey McHattan, Ashurst
corey.mchattan@ashurst.com

 

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