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October 21, 2013

A new form of capital: mutual equity interests

APRA has published draft amendments to APS 111 which allow for the issue of mutual equity interests by a mutually owned ADI.

APRA is proposing to allow mutual ADIs to issue Additional Tier 1 or Tier 2 capital instruments that could convert to Common Equity Tier 1 capital if the non-viability provisions are triggered.

Unlike listed public companies, conversion into ordinary shares is not possible for mutuals.

The conditions for the instrument will include the requirement for mutual equity interests to provide no voting rights (other than as required under the Corporations Act) and to limit both the claim of mutual equity interest holders on any surplus of a failed mutual ADI and the amounts that can be paid by way of dividends to these holders.

The proposal is open for consultation until 15 November 2013.

Langes will be working with clients to see how they can take advantage of the changes.

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Posted 21st October 2013 by David Jacobson in Credit unions, Legal, Mutuals

October 14, 2013

Limits on payments of termination benefits to directors

In Queensland Police Credit Union Ltd [2013] QSC 273 the Supreme Court of Queensland decided that payments made in 2010 and 2012 to 3 retiring directors without member approval under deeds made in September 2009 did not breach section 200B of the Corporations Act. Section 200B of the Corporations Act commenced on 24 November 2009.

Section 200B limits retirement benefits for directors and managers to their “average annual base salary”, unless members approve.

But Judge McMurdo left open the question of whether the Board had the power under the Credit Union's Constitution to agree to pay retirement benefits (in recognition of past services) without member approval.

Judge McMurdo observed:

" The applicant’s Constitution contains no provision by which the directors were authorised specifically to approve remuneration of a kind which could not be approved under cl 17 or, if it be different, a termination benefit. The board is given a general power, by cl 14.1, to manage the applicant’s business and to exercise all of the powers of the applicant except any powers that the Corporations Law or the Constitution expressly allocates to the general meeting. Although that provision was not discussed in the course of the applicant’s submissions, it may be the applicant’s position that this was the source of the power of the directors to cause the applicant to contract in terms of the Deeds. But that is not an obvious source of such a power. It is far from clear that the Constitution should be read as providing for some of the directors’ emoluments to be decided by a general meeting whilst leaving others, such as these termination benefits, to the board. The better view is that the Constitution permits the remuneration of directors but only by cl 17. If that is correct, then the provisions for termination benefits, within these Deeds, were made without the applicant’s authority and the recipients of the payments, who secured the benefit of these Deeds whilst themselves directors, would be obliged to repay the moneys. ...

Ultimately, it is unnecessary for me to express a concluded view upon whether the agreements for these termination payments were made with the authority of the applicant. That question was not fully argued and the declaration which is sought is in relation to a different issue, which is whether the payments contravened s 200B of the Act. That issue can be determined without a conclusion that the payments were otherwise duly made."

Comment: Directors and managers need to decide whether, under their Constitution, member approval is required for payment of retirement benefits unless such a payment can be made from the annual remuneration that has already been approved by members.

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Posted 14th October 2013 by David Jacobson in Credit unions, Legal

September 2, 2013

ASIC decides policy on demutualisation rules

ASIC has issued its report on its policy for considering requests from individual credit unions to switch off the demutualisation approval procedure rules.

It has decided that its policy should remain unchanged, except for one refinement.

REP 369 confirms that ASIC will, where the rule permits it to, issue a written notice to cease the effect of all, or any part of, the rules only where a credit union’s circumstances raise potential prudential concerns and the Australian Prudential Regulation Authority (APRA) considers it necessary for a proposed transaction to occur expeditiously.

ASIC will, however, consider allowing the rules to be switched off where the rules are only triggered because a party to a transaction is a former credit union that has been permitted by APRA to become a ‘mutual bank’ under the Banking Act 1959.

Background

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Posted 2nd September 2013 by David Jacobson in Credit unions, Legal

July 29, 2013

Archbishop of Canterbury backs credit unions

The Church of England's Archbishop of Canterbury has recently started a Church of England staff credit union and is now advocating giving English credit unions access to Church premises to distribute personal loans: see Financial Times and The Telegraph.

Although credit unions in England and Australia have followed a different path it is interesting that the Archbishop has identified credit unions for their member focus.

Some credit unions in Australia got their start in the 1960's in Catholic parishes.

In a recent interview the Archbishop said:

“... We're putting our money where our mouth is, we're starting a Church of England staff credit union. You've got (to) have a corporate interest body to identify who's members of the credit union. We're starting one of those so we're actually getting involved ourselves. We're working steadily with the main trade bodies for the credit unions. There's a major investment coming from BIS of £35m over the next 10 years. The Government has, in the regulatory structure that came through the Financial Services Act last year, cleared space for credit unions through approaches to regulation. We've got to have credit unions that are both engaged in their communities and much more professional, and the third thing is people have got to know about them. It's a decade long process.”

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Posted 29th July 2013 by David Jacobson in Credit unions

June 17, 2013

Review of demutualisation approval procedure rules

ASIC has released Consultation Paper 210 Demutualisation approval procedure rules: Minimum member participation requirement (CP 210) seeking feedback on its approach to considering requests from credit unions to revoke demutualisation approval procedure rules.

Demutualisation approval procedure rules giving ASIC the power of revocation are contained in some credit unions’ constitutions and apply when the credit union is seeking member approval of certain types of transactions that will affect the mutuality of the credit union. However in certain circumstances the rules have proved over-restrictive.

The rules apply in addition to RG 147 requirements and the demutualisation disclosure procedures set out in Part 5 of Schedule 4 of the Corporations Act.

ASIC is considering whether a requirement for 25% of all members of a credit union to vote in a preliminary postal ballot on specified proposals is set at an appropriate level.

ASIC is also considering whether there are any circumstances in which it would be appropriate for ASIC to consider removing or changing the required percentage.

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Posted 17th June 2013 by David Jacobson in Credit unions, Mutuals

May 21, 2013

Credit union register

From time to time we are asked what a credit union’s current name is, or, more usually, who did it merge with?

Although APRA has a list of current credit unions the Australian Credit Union Archives has a helpful PDF list of past current unions available in their Register of Australian Credit Unions.

There is also a search engine.

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Posted 21st May 2013 by David Jacobson in Credit unions

Comparing capital requirements

I recently attended a talk by BOQ CEO Stuart Grimshaw. He argued that regional banks were at a structural disadvantage against the 4 largest banks.

He pointed to the 4 banks' annual combined profit of more than $24billion; yet smaller ADI's had to provide up to 3 times as much capital for housing loans.

Whilst he acknowledged that mutuals had the same disadvantage, he avoided putting regional banks and credit unions in the same category (after all BOQ has assets of $42bn).

Separately, APRA is yet to respond to submissions from mutuals for capital instruments that would meet the Basel III capital requirements.

Background

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Posted 21st May 2013 by David Jacobson in Credit unions, Mutuals

April 29, 2013

Use of “banking” by credit unions and building societies

The Australian Prudential Regulation Authority (APRA) has released for comment draft revised guidelines on implementation of section 66 of the Banking Act.

Sections 66 and 66A of the Banking Act place restrictions on the use of certain terms, for example ‘bank’, ‘banker’, ‘building society’ and ‘credit union’, when used in relation to a financial business.

The changes include:

  • that credit unions and building societies may use the expressions ‘banker’ and ‘banking’ in marketing and branding material to describe their banking services, but may not use the term ‘bank’.
  • that credit unions and building societies may not use the expressions the terms ‘banker’ and ‘banking’ as part of a registered corporate, business or trading name, or as part of an internet domain name by a credit union or building society; and
  • that ADIs with a mutual structure may use the phrase ‘mutual banking’.

Credit unions and building societies seeking to operate as a bank
APRA will, unless there are special circumstances, grant an ADI that wishes to operate as a bank and that holds at least $50 million in Tier 1 capital an individual consent to use or assume the expressions ‘bank’, ‘banker’ and ‘banking’ on an unrestricted basis. Unrestricted consent allows the ADI to use the expressions ‘bank’, ‘banker’ and ‘banking’ in its company name and trading or business names and to describe or to advertise its business.

However, in circumstances where the ADI has previously operated as a credit union or building society, APRA will impose transitional conditions upon the grant of such consent.

APRA’s policy is that an ADI cannot simultaneously:

  • operate as a bank with unrestricted consent to use the restricted expressions ‘bank’, ‘banker’ and ‘banking’; and
  • operate as a credit union or building society .

Further, an ADI that was previously a credit union or building society and that now operates as a bank will be required to take appropriate steps to ensure that members, depositors, other customers and the general public are clearly aware that it is now operating as a bank. APRA may, for instance, grant unrestricted consent to use the restricted expressions ‘bank’, ‘banker’ and ‘banking’ on the condition that the ADI use the word ‘bank’ in its corporate, trading or business name for a finite period.

Langes can advise credit unions and building societies on the implications of the proposed changes.

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Posted 29th April 2013 by David Jacobson in Credit unions, Legal, Mutuals

March 11, 2013

Credit unions and building societies changes

One of the consequences of a change of name by a credit union or building society to include "bank" is that APRA removes the entity from its credit union or building society lists to its bank list.

Since September 2011, 7 credit unions and 1 building society have transferred from APRA's credit union and building society lists to its list of Australian-owned banks.

As a result, APRA has moved statistics for mutual banks from the CUBS statistics to its bank publications.

Here are the Australian-owned mutual banks

Defence Bank Limited
Heritage Bank Limited
mecu Limited (trading as bankmecu)
Police Bank Ltd
Police & Nurses Limited (trading as P&N Bank)
QT Mutual Bank Limited
Teachers Mutual Bank Limited
Victoria Teachers Limited (trading as Victoria Teachers Mutual Bank)

APRA is proposing to replace its current separate publications with Quarterly ADI Performance Statistics (QADIP) from late May.

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Posted 11th March 2013 by David Jacobson in Credit unions, Mutuals

December 31, 2012

CUBS and mutual bank stats

The Australian Prudential Regulation Authority (APRA) has released a discussion paper outlining proposals to change its statistical publications on authorised deposit-taking institutions (ADI).

APRA proposes to combine the quarterly bank and CUBS statistical publications into a quarterly ADI statistical publication which will incorporate statistics on capital adequacy, impaired facilities and credit union and building society liquidity.

The proposed combined publication will also include, for the first time, statistics for mutual banks or mutual ADIs .

Since September 2011, APRA has approved seven CUBS to use the word ‘bank’. As a consequence, these seven CUBS are now classified as banks in APRA’s statistical publication. Most credit unions and building societies are mutuals. The approval to use the word bank has therefore led to the emergence of ‘mutual banks’.

APRA proposes to publish selected aggregate statistics for mutual ADIs in the Quarterly ADI Performance Statistics. APRA proposes that a mutual (whether a bank, CUBS or ADI) will be defined as an institution where each member is issued one share and each member has one vote.

Mutual ADIs currently comprise mutual banks as well as all mutual CUBS. Almost all CUBS are mutual institutions. The small number of CUBS that do
not meet the definition of a mutual, would not be included in ‘mutual ADIs’.

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Posted 31st December 2012 by David Jacobson in Credit unions, Mutuals
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