Banking (prudential standard) determination No. 10 of 2011 - Prudential Standard APS 910 - Financial Claims Scheme
Calculation of End-of-Day deposit balancCalculation of End-of-Day deposit balances
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The amount repayable to an account-holder must be calculated as the sum of the End-of-Day deposit balances held in all protected accounts in an account-holder’s name on the day on which a declaration is made that the FCS applies in relation to an ADI (or if APRA requires the ADI to generate data for test purposes, the day on which APRA instructs the ADI to generate the data). As End-of-Day deposit balances could include both cleared and uncleared funds, payments must only be made on the basis of deposit balances comprising cleared funds. Uncleared funds in protected accounts, on the day the FCS is declared, must clear before being eligible to be paid out.
A failed ADI is likely to be withdrawn from the payments system as soon as a decision is made to declare the FCS in relation to that ADI. It is therefore necessary to ensure the correct posting to accounts of all unsettled[6] payments exchanged between the failed ADI and other ADIs on the day of the failure. These payments could include direct entry credits, cheques and EFTPOS transactions.
An ADI must not net or set-off against balances held in a protected account for the purposes of the FCS. All balances must be on a gross basis adjusting for accrued interest, fees and charges applicable to an account (i.e. the net credit balance as defined in section 5 of the Banking Act).
Overdrafts and other forms of debt must not to be set off against balances in protected accounts.
Process for determining End-of-Day position
Failure by a direct participant
The Australian Payments Clearing Association’s (APCA’s) Australian Paper Clearing System (APCS) has been determined by the Reserve Bank of Australia to be a ‘recognised settlement system’ under the Cheques Act 1986 (Cheques Act). The effect of this is that all cheques drawn on an ADI that becomes a failed financial institution (within the meaning of subsection 70A(2) of the Cheques Act) after the cheque is lodged and before the cheque is settled are taken to be dishonoured. Accordingly, for the purpose of calculating an End-of-Day balance, any debits posted to an account by a failed ADI in connection with unsettled cheques must be reversed. Similarly, credit entries made by other ADIs to an account arising from unsettled cheques drawn on the failed ADI must also be reversed.
Cheques drawn on an ADI, other than the failed ADI, and deposited into accounts at a failed ADI prior to the commencement of statutory management remain obligations due to the failed ADI by the ADI on whom the cheque is drawn. When calculating the End-of-Day aggregate deposit balance, the failed ADI must ensure that credits associated with these cheques are posted to accounts as they normally would be. However, these deposits would remain subject to the standard APCS rules on cleared funds (i.e. cheques drawn on an ADI, and deposited at the failed ADI, could be dishonoured by an ADI if, for example, the drawer had insufficient funds in their account). As a result, End-of-Day deposit balances must distinguish between ‘cleared’ and ‘uncleared’ funds. APRA will only make FCS payments to account-holders in respect of cleared funds.
Legislation similar to the Cheques Act does not exist in respect of other payments instruments. Treatment of accounts in respect of non-cheque payment instruments may be influenced by non-APCA contractual requirements (e.g. BPAY). To the extent that contractual requirements are either silent, or allow discretion to be exercised, ADIs must adopt uniform accounting treatments in dealing with a failed ADI.
The exchange of direct entry credit and debit files will cease from the time that an ADI is withdrawn from the payments system. Specifically, for files that were exchanged prior to the ADI’s withdrawal:
(a) unsettled direct entry credit files received from a failed ADI would be returned to the failed ADI if they had not already been posted to accounts at another ADI. Unsettled direct entry credits that had been posted to accounts at another ADI would stand. To ensure consistent treatment between accounts at a failed ADI and all other ADIs, the failed ADI would need to explicitly identify which of its files had been processed by another ADI and which had not;
(b) direct entry debit files that have not been settled by a failed ADI would be treated as if they had not been exchanged or dishonoured (and any account postings would be reversed by the receiving ADI as well as the failed ADI);
(c) all direct entry credit and debit files exchanged on the day of failure, which require settlement payment from another ADI to the failed ADI, are to be processed as normal. As a result, the failed ADI would need to post incoming direct entry credit payments from other ADIs and include these transactions in its End-of-Day aggregate deposit balance. The same would apply to direct debit files the failed ADI had exchanged with other ADIs;
(d) real-time gross settlement (RTGS) payments are settled at the time they are exchanged. As a result, RTGS payments exchanged between a failed ADI and another ADI are irrevocable and these transactions must be included in the End-of-Day balance; and
(e) a failed ADI’s ATM network and EFTPOS banking channels would be closed from the time that the ADI is withdrawn from the payments system. Unsettled ATM and EFTPOS transactions must not be revoked because of the real-time nature of these transactions. APRA would also instruct the statutory manager, or request the liquidator, to close the payments functions associated with a failed ADI’s internet and telephone banking facilities.
Accrued interest and fees
An ADI must calculate accrued interest and pay interest at the relevant interest rate applicable to the account in question, rather than a break rate that might apply if an account-holder withdraws funds before a certain time or subject to other restrictions. An ADI must ensure that its accounting systems are able to apply interest at the contractual rate applicable to each account in the event of the ADI failing.
For the purpose of testing SCV data, it will not be necessary for an ADI, in calculating the End-of-Day balance, to run an accrual to determine interest, fees and charges applicable to an account, unless the accrual is normally run on a daily basis or where the reporting date selected by APRA coincides with month-end. An End-of-Day figure based on the principal amounts held in each protected account will be sufficient for the initial End-of-Day balance for testing purposes.
Treatment of unsettled payments
Depending on how account-holders are to be paid out, an ADI would either be suspended from the payments system and then reinstated for a limited period to facilitate payment to account-holders (if the ADI’s own systems were used for payment), or terminated from the payments system, with APRA appointing a paying agent to pay out balances in protected accounts up to the FCS limit to account-holders. In either case, the standard APCA failure-to-settle procedures would be applied in each payment system in which the ADI was a participant.
APCA rules distinguish between direct participants and indirect participants. The former assume responsibility for settlement of payments obligations drawn on indirect participants as well as their own settlement obligations. In the event that an indirect participant fails, its representative direct participant remains responsible for settling the indirect participant’s obligations. In these circumstances, credits posted to accounts at a solvent ADI, and associated debits posted to accounts at the failed ADI, would stand even where the indirect participant had not settled for the resultant obligations with its representative direct participant (subject to the legitimate reversal of direct credits and the possibility of direct debits being dishonoured by the failed ADI). Since some ADIs are direct participants in one or more APCA payment systems while participating indirectly in others, the treatment of customer accounts may vary by payment instrument.
Reversing a bank cheque drawn on a failed ADI
Unsettled bank cheques, including personal cheques, drawn on a failed ADI would be dishonoured by other ADIs under existing APCA rules upon an ADI being wound up. In effect, an ADI would need to identify the cheques drawn on the failed ADI that had been deposited to customer accounts that day (since the last interbank 9am settlement) and then debit them to the receiving customers’ account balances. Equally, the failed ADI would need to be able to re-credit any cheque debits posted to its customers’ accounts since the last interbank settlement occurred. Bank cheques (as distinct from customer cheques) would need to be re-credited to the bank cheque account held in the failed ADI's name they were drawn from.