A Bill for an Act to amend the Banking Act 1959, and for
related purposes
The Parliament of Australia enacts:
1
Short title
This Act may be cited as the Banking
Amendment (Covered Bonds) Act 2011.
2
Commencement
This Act commences on the day this Act
receives the Royal Assent.
3
Schedule(s)
Each Act that is specified in a Schedule
to this Act is amended or repealed as set out in the applicable items in the
Schedule concerned, and any other item in a Schedule to this Act has effect
according to its terms.
Schedule 1—Amendments
Banking Act 1959
1 Subsection 5(1)
Insert:
covered bond has the meaning given by
subsection 26(1).
2 Subsection 5(1)
Insert:
covered bond liabilities has the meaning
given by subsections 26(4) and (5).
3 Subsection 5(1)
Insert:
covered bond special purpose vehicle has the
meaning given by subsection 26(1).
4 Subsection 5(1)
Insert:
cover pool has the meaning given by
subsection 26(3).
5 Subsection 5(1)
Insert:
issuing ADI has the meaning given by
subsection 26(6).
6 Subparagraph 9A(2)(a)(ii)
After “1BA”, insert “or section 29”.
7 Paragraph 11CA(2)(n)
After “amount”, insert “or asset”.
8 Subsection 11CA(2)
Before “does not apply”, insert “or asset”.
9 After subsection 11CA(2)
Insert:
(2AA) However, APRA must not direct, or give a
direction that would cause or require, a covered bond special purpose vehicle
to:
(a) deal, or not deal, with an asset
to the extent that the asset secures covered bond liabilities of an ADI; or
(b) make a payment, or not make a
payment, in relation to a covered bond liability of an ADI.
Note: Covered bond special purpose vehicles hold
assets that secure liabilities in relation to covered bonds: see Division 3A
of Part II.
10 Subsection 11CD(1A)
After “Subdivision A or B”, insert “or section 29”.
11 Subsection 11CD(2)
Before “the other party”, insert “or because of a direction under
section 29,”.
12 Subsection 11CD(3)
After “Subdivision A” (wherever occurring), insert “or section 29”.
13 Subsections 11CE(1) and (2)
After “Subdivision A or B”, insert “or section 29”.
14 Paragraphs 11CE(3)(a) and (b)
After “Subdivision A or B”, insert “or section 29”.
15 Subsection 11CE(4)
After “Subdivision A or B”, insert “or section 29”.
16 Paragraphs 11CG(1)(b) and (2)(a)
Omit “or 23”, substitute “, 23 or 29”.
17 Subsection 11CG(2A)
Omit “or 23”, substitute “, 23 or 29”.
18 After subsection 13A(3)
Insert:
(3A) The assets of an ADI are taken for the
purposes of subsection (3) not to include any interest in an asset (or a part
of an asset) in a cover pool for which the ADI is the issuing ADI.
19 After subsection 13A(4)
Insert:
(4A) For the purposes of subsection (4):
(a) the ADI’s deposit liabilities are
taken not to include an amount equal to the total of the face values of all of
the covered bonds issued by the ADI; and
(b) the assets of the ADI are taken
not to include:
(i) any interest in an
asset (or a part of an asset) in a cover pool for which the ADI is the issuing
ADI; or
(ii) any loan to a covered
bond special purpose vehicle that relates to an asset (or a part of an asset)
in a cover pool for which the ADI is the issuing ADI.
20 Paragraph 14B(1)(a)
After “1BA”, insert “or section 29”.
21 Subparagraph 16BA(6)(a)(iii)
After “Part II”, insert “or section 29”.
22 After Division 3 of Part II
Insert:
Division 3A—Covered bonds
24
Guide to this Division
This Division provides for the issue
of covered bonds by ADIs.
An ADI issuing covered bonds must provide
assets to secure the covered bonds and related liabilities. These assets are
held by a covered bond special purpose vehicle. Some of the assets held by the
covered bond special purpose vehicle form the cover pool for the covered bonds.
The ADI must not issue covered bonds
if the combined value of assets in cover pools securing covered bonds issued by
the ADI would exceed 8%, or such other percentage as is prescribed by the
regulations, of the value of the ADI’s assets in Australia.
25 Application
of Division
This Division does not apply in relation
to:
(a) a foreign ADI; or
(b) a bond, note or other debenture,
liabilities in relation to which are secured wholly by assets that are not in
Australia.
26 Covered
bonds
(1) Covered bonds are bonds,
notes or other debentures issued by an ADI, liabilities to the holders of
which, or their representatives, are:
(a) recoverable from the ADI; and
(b) secured by assets beneficially owned
by a covered bond special purpose vehicle.
Purposes of covered bond special purpose vehicle
(2) The purposes of the covered bond special
purpose vehicle must relate only to the covered bonds.
Cover pool
(3) The cover pool for the
covered bonds consists of the assets beneficially owned by the covered bond
special purpose vehicle to the extent that they secure the liabilities to the
holders or representatives equally or in priority to any other liabilities.
Note 1: The value of the cover pool will usually exceed
the value of the liabilities to the holders or representatives.
Note 2: Assets in cover pools may change from time to
time.
Covered bond liabilities
(4) The liabilities to the holders or
representatives, and any other liabilities secured by assets beneficially owned
by the covered bond special purpose vehicle, are covered bond liabilities
of the ADI.
Note: This means that liabilities incurred by the
covered bond special purpose vehicle can be covered bond liabilities
of the ADI.
(5) However, a liability to the ADI, other
than a liability in relation to a derivative or the provision of services,
secured in priority to any liability to the holders or representatives is not a
covered bond liability of the ADI.
Issuing ADI
(6) The ADI is the issuing ADI for:
(a) the cover pool; and
(b) the covered bond special purpose
vehicle.
27 Arrangements
involving several ADIs
Aggregated issuing of covered bonds
(1) Two or more ADIs may enter into an
arrangement with another entity (the aggregating entity) under
which the aggregating entity issues bonds, notes or other debentures secured by
covered bonds issued by each of the ADIs to the aggregating entity.
Other arrangements
(2) The regulations may prescribe other
arrangements that may be entered into by 2 or more ADIs for the purposes of
issuing or dealing with covered bonds.
28
Restrictions on issuing covered bonds—8% rule
An ADI must not issue a covered bond if
the combined value of assets in cover pools securing covered bonds issued by the
ADI would exceed 8%, or such other percentage as is prescribed by the
regulations, of the value of the ADI’s assets in Australia.
29
Restrictions on issuing covered bonds—APRA directions
(1) APRA may direct an ADI not to issue a
covered bond.
(2) APRA may, by written notice given to the
ADI, give the ADI such a direction if:
(a) APRA has reason to believe that
the ADI has contravened:
(i) this Division; or
(ii) another
provision of this Act, a prudential requirement regulation or a prudential
standard relating to covered bonds; or
(b) APRA has given the ADI a direction
under section 11CA.
(3) A notice under subsection (2) is not
a legislative instrument.
(4) The direction may deal with the time by
which, or period during which, it is to be complied with.
(5) The ADI has power to comply with the
direction despite anything in its constitution or any contract or arrangement
to which it is a party.
(6) APRA may, by notice in writing to the
ADI, vary the direction if, at the time of the variation, it considers that the
variation is necessary and appropriate.
(7) The direction has effect until APRA
revokes it by notice in writing to the ADI. APRA may revoke the direction if,
at the time of revocation, it considers that the direction is no longer
necessary or appropriate.
(8) Part VI applies to a decision to
give a direction under subsection (1).
(9) Information relating to directions and
revocations of directions under this section is subject to the secrecy
requirements in Part 6 of the Australian Prudential Regulation
Authority Act 1998, unless the information has been published in the Gazette
under section 11CE of this Act.
(10) This section does not limit any other
powers of APRA to give directions.
30
Cover pool monitors
(1) Each cover pool must have a cover pool
monitor.
(2) The cover pool monitor must:
(a) be registered as an auditor under
Part 9.2 of the Corporations Act 2001; or
(b) hold an Australian financial
services licence under that Act that covers the provision of financial services
as the cover pool monitor; or
(c) be exempt under that Act from
holding an Australian financial services licence for the provision of financial
services as the cover pool monitor.
(3) However, the cover pool monitor must not
be:
(a) the issuing ADI for the cover pool;
or
(b) an associated entity (within the
meaning of the Corporations Act 2001) of the issuing ADI.
(4) The functions of the cover pool monitor
are as follows:
(a) to assess the keeping, by the issuing
ADI or covered bond special purpose vehicle concerned, of an accurate register
of the assets in the cover pool;
(b) to assess compliance by the issuing
ADI with sections 31 and 31A;
(c) to make reports relating to the
matters in paragraphs (a) and (b) available to the issuing ADI (or any
substituted entity) for distribution to the holders of covered bonds or their
representatives;
(d) to provide reports relating to the
cover pool to APRA on written request by APRA;
(e) such functions (if any) as are
prescribed by the regulations.
(5) Copies of reports provided under paragraph (4)(d)
must be provided to the issuing ADI (or any substituted entity) and the covered
bond special purpose vehicle concerned.
(6) The functions covered by paragraphs (4)(a)
to (c) must be performed at least every 6 months.
(7) The functions covered by paragraphs (4)(a)
and (b) may be performed by sampling in accordance with auditing standards made
under the Corporations Act 2001.
31
Assets that may be in cover pools
(1) An asset in a cover pool must be one of
the following:
(a) an at call deposit held with an
ADI and convertible into cash within 2 business days;
(b) a bank accepted bill or certificate
of deposit that:
(i) matures within 100
days; and
(ii) is eligible for
repurchase transactions with the Reserve Bank; and
(iii) was not issued by the
ADI that issued the covered bonds secured by the assets in the cover pool;
(c) a bond, note, debenture or other
instrument issued or guaranteed by the Commonwealth, a State or a Territory;
(d) a loan secured by a mortgage,
charge or other security interest over residential property in Australia;
(e) a loan secured by a mortgage,
charge or other security interest over commercial property in Australia;
(f) a mortgage insurance policy or
other asset related to a loan covered by paragraph (e) or (f);
(g) a contractual right relating to the
holding or management of another asset in the cover pool;
(h) a derivative held for one or more
of the following purposes:
(i) to protect the value
of another asset in the cover pool;
(ii) to hedge risks in
relation to another asset in the cover pool;
(iii) to hedge risks in
relation to liabilities secured by the assets in the cover pool;
(i) an asset of a kind prescribed by
the regulations for the purposes of this paragraph.
(2) Paragraph (1)(i) is not limited by paragraphs (1)(a)
to (h).
(3) Despite subsection (1), a cover pool
must not contain an asset of a kind prescribed by the regulations for the
purposes of this subsection.
31A
Maintenance of cover pools
(1) The value of assets in a cover pool must
be at least 103%, or such other percentage as is prescribed by the regulations,
of the face value of the covered bonds secured by the assets.
Note: An exception to this rule is set out in subsection (5).
(2) The value of assets covered by paragraph
31(1)(b) (bank accepted bills or certificates of deposit) in a cover pool must
not exceed 15% of the face value of the covered bonds secured by the assets.
Note: An exception to this rule is set out in subsection (6).
(3) For the purposes of subsection (1),
if the sum of:
(a) the outstanding principal amount
of a loan secured by a residential property; and
(b) the outstanding principal amounts
of any prior or equal ranking loans secured by the property;
exceeds 80%, or such other percentage as is prescribed by
the regulations, of the value of the property (as determined by the most recent
valuation of the property), then the value of the loan is reduced by the amount
of the excess.
(4) For the purposes of subsection (1),
if the sum of:
(a) the outstanding principal amount
of a loan secured by a commercial property; and
(b) the outstanding principal amounts of
any prior or equal ranking loans secured by the property;
exceeds 60%, or such other percentage as is prescribed by
the regulations, of the value of the property (as determined by the most recent
valuation of the property), then the value of the loan is reduced by the amount
of the excess.
Exceptions
(5) Subsection (1) does not apply to the
extent that compliance would be inconsistent with a direction given by APRA.
(6) Subsection (2) does not apply to the
extent that compliance would be inconsistent with the need to deal with an
asset to satisfy a call on security in relation to a covered bond.
31B Protection
of certain contractual rights
Directions by APRA
(1) Subsection 11CD(1A) (direction not
grounds for denial of obligations) does not prevent the exercise of a contractual
right in relation to an asset that secures liabilities to holders of covered
bonds, or their representatives, if payments under the covered bonds to the
holders or representatives are not made.
ADI statutory manager in control
(2) Section 15C (ADI statutory manager
being in control not grounds for denial of obligations) does not prevent the
exercise of a contractual right in relation to an asset that secures
liabilities to holders of covered bonds, or their representatives, if payments
under the covered bonds to the holders or representatives are not made.
31C
Powers and obligations of ADI statutory manager or external administrator
To the extent that an asset secures
covered bond liabilities of an ADI, an ADI statutory manager or an external
administrator has:
(a) no powers in relation to the asset
apart from the contractual powers of the ADI; and
(b) the contractual obligations of the
ADI in relation to the asset.
31D
Prudential standards—treatment of assets and liabilities
(1) This section applies for the purposes of
applying:
(a) prudential standards in relation
to assets in cover pools securing covered bonds issued by an ADI; and
(b) any other prudential standard in
relation to the ADI.
(2) Treat those assets as assets of the ADI
to the extent that the total value of those assets at the time does not exceed
8%, or such other percentage as is prescribed by regulations made for the
purposes of section 28, of the ADI’s assets in Australia.
(3) Disregard any liability of the ADI to a
covered bond special purpose vehicle that relates to an asset, or a part of an
asset, that is to be treated as an asset of the ADI under subsection (2).
(4) Disregard any liability of a covered bond
special purpose vehicle to the ADI that relates to an asset, or a part of an
asset, that is to be treated as an asset of the ADI under subsection (2).
31E Prudential
standards for covered bonds
(1) A prudential standard may provide for any
matter relating to covered bonds, including the following:
(a) the issuing of covered bonds;
(b) assets in cover pools;
(c) maintenance of cover pools.
Note: Prudential standards are made under section 11AF.
(2) A prudential standard relating to covered
bonds may:
(a) require that the following together
satisfy particular requirements in relation to prudential matters:
(i) an ADI;
(ii) one or more covered
bond special purpose vehicles that beneficially own assets securing covered
bond liabilities of the ADI; and
(b) impose, in relation to assets, or
parts of assets, in cover pools that are not treated as assets of an ADI under
section 31D, requirements that are different from requirements imposed in
relation to assets, or parts of assets, in cover pools that are treated as
assets of the ADI under that section; and
(c) impose, in relation to a liability
of an ADI to a covered bond special purpose vehicle that is not covered by
subsection 31D(3), requirements that are different from requirements imposed in
relation to liabilities that are covered by that subsection; and
(d) impose, in relation to a liability
of a covered bond special purpose vehicle to an ADI that is not covered by
subsection 31D(4), requirements that are different from requirements imposed in
relation to liabilities that are covered by that subsection.
(3) This section does not limit the
prudential matters in relation to which APRA may determine standards under
section 11AF.
31F
APRA may direct covered bond special purpose vehicles to return certain assets
(1) APRA may, by written notice given to a
covered bond special purpose vehicle, direct the covered bond special purpose
vehicle to return to its issuing ADI an asset to the extent that, at the time
the direction is given, the asset does not secure covered bond liabilities of
the issuing ADI.
(2) Subsection (1) applies only if APRA
may give the issuing ADI a direction under section 11CA.
(3) A notice under subsection (1) is not
a legislative instrument.
(4) The direction may deal with the time by
which, or period during which, it is to be complied with.
(5) The covered bond special purpose vehicle has
power to comply with the direction despite anything in its constitution or any
contract or arrangement to which it is a party.
(6) APRA may, by notice in writing to the covered
bond special purpose vehicle, vary the direction if, at the time of the
variation, it considers that the variation is necessary and appropriate.
(7) The direction has effect until APRA
revokes it by notice in writing to the covered bond special purpose vehicle. APRA
may revoke the direction if, at the time of revocation, it considers that the
direction is no longer necessary or appropriate.
(8) Part VI applies to a decision to
give a direction under subsection (1).
(9) Information relating to directions and
revocations of directions under this section is subject to the secrecy
requirements in Part 6 of the Australian Prudential Regulation
Authority Act 1998, unless the information has been published in the Gazette
under section 11CE of this Act.
(10) This section does not limit any other
powers of APRA to give directions.
(11) If a direction is given under subsection (1),
this Act applies in relation to the direction as if:
(a) the covered bond special purpose
vehicle were an ADI; and
(b) the direction were given under section 29.
23 Subparagraph 62A(1B)(a)(ii)
After “Part II”, insert “or section 29,”.