Banking – retail
Banks and financial institutions who provide financial products to retail clients must be licensed under FSR and meet the disclosure and conduct requirements of FSR along with a range of other regulatory codes of conduct such as the Code of Banking Practice and the EFT Code. However, not all of these regulatory requirements are consistent.
See also - wholesale banking
- Licensing
- What retail banking products are caught by FSR?
- Financial investment products
- Basic deposit products
- Some relief for basic deposit products
- Non-cash payments
- Credit excluded
- Disclosure
- Overlap with other Codes
- Compliance challenges
Updated as at 11 March 2004.
Licensing
Banks generally offer a range of financial services which require them to hold an appropriate financial services licence. Banks typically offer retail clients:
- a suite of financial products which they issue, such as savings and cheque accounts and facilities to make non-cash payments;
- access to products offered by other providers, such as superannuation and insurance products; and
- a full range of financial services in relation to those financial products including advisory services such as financial planning and custodial services for the safekeeping of financial products.
Banks require a licence which covers all of the financial services regulated under FSR. However, not all of the products and services offered by banks are regulated and no licence is needed for 'excluded products', such as credit facilities.
Obtaining a licence is a complex process which requires organisations to be satisfied that they comply with a range of laws. Organisations need clearly to identify which products are regulated and how they are affected.
What retail banking products are caught by FSR?
Many products which are offered by banks are caught by FSR because they are financial products. However not all products are caught as there is a carve out for credit facilities. Below we look at some of the key retail banking products and what regulation under FSR means in practical terms.
Financial investment products
FSR catches all types of deposit accounts including term deposits, cash management accounts, cheque accounts and retirement savings accounts. These products are regulated even where the customer does not earn any interest as the legislation applies if there is intended to be any financial return or other benefit (even if no return or benefit is in fact generated).
However, not all financial products need to be treated in the same way. Certain basic deposit products are subject to less onerous requirements.
Basic deposit products
Basic deposit products are deposit products which:
- are at call or, if for a term, have a term of five years or less;
- allow for withdrawal of funds without prior notice except that:
- for credit unions, credit societies, credit co-operatives and building societies, withdrawal can be on not more than seven days' notice); and
- prior notice can be required for early withdrawal from a term deposit of two years or less;
- have no management, entry or break fees, but:
- may have an account maintenance fee; and
- a term deposit may have a reduction in interest rate if there is a withdrawal before maturity; and
- have a specified return or interest rate (which can be a reference rate).
Some relief for basic deposit products
The rules under FSR provide some relief from the disclosure and other requirements for basic deposit products. For example:
- providing a Financial Services Guide, but certain information must still be given;
- providing a Statement of Advice, but certain information must still be given;
- providing a Product Disclosure Statement before the product is issued – but this concession only applies if it is not reasonably practicable to do so before the client requires the advice (in a recommendation situation) or the product (in an issue situation) and the Product Disclosure Statement is given after the basic deposit product is recommended, provided or issued (with any required confirmation, or otherwise within five days);
- there are fewer training requirements for people who provide advice on basic deposit products; and
- an employee of an authorised representative of the holder of a financial services licence which covers a basic deposit product or a facility for making non-cash payments that is related to a basic deposit product can supply that basic deposit product or that non-cash payment facility without needing to be an authorised representative themselves or to hold an Australian financial services licence.
Non-cash payments
FSR catches many of the non-cash payment facilities offered by banks and other financial institutions including BPay, phone and internet banking, store value and other smart cards, direct debit and direct credit, ATM and EFTPOS, cheques and travellers cheques.
However, if payments made using the facility will all be debited to a credit facility then the non-cash payment facility will itself be excluded. This means, for example, that access by credit card or direct debit to a line of credit is not caught.
Other non-cash payment methods (for example ATM, internet banking, telephone banking) which can be used to access other accounts or facilities as well as a credit facility are not excluded.
Facilities for making non-cash payments that are related to basic deposit products are subject to the same concessions as basic deposit products.
Travellers cheques are also subject to the same concessions as apply to basic deposit products.
Credit excluded
- Credit facilities are excluded from FSR. Credit is specifically defined in the Corporations Regulations and covers products which involve the provision of credit such as personal loans, bill facilities, mortgages, guarantees and credit cards, hire purchase or finance lease arrangements.
- In addition to excluding credit facilities, FSR also excludes facilities for the making of non-cash payments if payments made using the facility are debited to a credit facility. This is intended to exclude, for example, payments made using a credit card.
Disclosure
Financial institutions need to assess carefully the disclosure requirements and take a balanced approach to meeting them.
Experience with the Consumer Credit Code has shown that financial institutions are likely (quite properly) to err on the side of caution if they (or their lawyers) are having difficulty interpreting new legislative requirements. The Consumer Credit Code has meant that customers have been provided with lots of detail they neither want nor are likely to read in full. It is important from both a cost and a customer relations point of view to ensure that customers are not burdened with unnecessary detail while at the same time complying with both the letter and the spirit of the legislation.
Statements and confirmations
Statements are required for deposit products (including basic deposit products) at least annually.
Confirmations of transactions (including acquiring the product and disposal of all or part of the product but not debiting for fees, charges or government duties in respect of the product or transactions on the product) are required unless an exemption applies.
Exemptions for deposit products include cheque withdrawals, deposits and withdrawals by direct credit or direct debit and crediting of interest, but not transactions conducted using a non-cash payment method such as BPay, internet banking, debit card and EFTPOS.
For basic deposit products, the confirmation requirement is met for both debit and credit transactions if the account holder is given a periodic statement not later than six months after the transaction occurs.
It is possible, if a customer agrees, instead of providing a confirmation, to provide a facility through which the customer can, for himself or herself, get a confirmation as soon as is reasonably practicable after the transaction occurs. This facility must offer written or electronic confirmation. A telephone facility (such as telephone banking) does not comply.
Overlap with other Codes
There is overlap between FSR and both the Code of Banking Practice (CBP) and the revised Electronic Funds Transfer Code of Conduct (EFT Code) with some products being regulated by all three. For example, some non-cash payment products will be subject to FSR, the EFT Code and the CBP.
If both a code and FSR apply, institutions will need to comply with the most onerous obligation. For example, for non-cash payment facilities caught by the EFT Code, statements must be issued at least six monthly although FSR only requires them annually. Where FSR requires 30 days' prior notice for increases in fees and charges, that requirement must be met even though the EFT Code only requires 20 days' notice.
There is overlap between the CBP and FSR. The revised CBP (which came into effect in August 2003) recognises this overlap and provides some relief. For example, FSR and not the CBP will specify the notice requirements for changes to account terms (including fees and charges) on products regulated by FSR.
However, banks will still need to meet the CBP requirements about:
- pre-contractual conduct;
- content of terms and conditions;
- availability of general descriptive information about banking services generally, and cheque accounts in particular;
- foreign exchange services;
- statements of account; and
- complaints and dispute resolution.
Compliance challenges
FSR implementation has presented a number of compliance challenges, including:
- how to deal with interest rate disclosure, and what obligations arise when rates move;
- disclosure obligations on rollover of term deposits;
- appointment and accreditation of authorised representatives;
- how to deal with financial product advice in marketing material; and
- treatment of rewards programmes.
Challenges will continue as banks 'go live' with their new processes and documentation.
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