Banking (prudential standard) determination No. 6 of 2006 - Prudential Standard APS 120 - Funds Management and Securitisation
Guidance Note AGN 120.1Guidance Note AGN 120.1
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Authorised deposit-taking institutions (ADIs) may develop a presence in funds management or securitisation schemes provided there is very clear disclosure and adequate separation. The ADI’s brand name may be used in marketing, provided there is adequate disclosure of the ADI’s role and responsibilities.
Disclosure
To safeguard against investor confusion, an ADI involved in funds management and securitisation activities should ensure that there is very clear and prominent disclosure to investors of the nature and limitations of the ADI’s obligations arising from the involvement. Documentation or marketing of funds management or securitisation schemes with which an ADI is involved should not give the impression that recourse to the ADI would extend beyond any specific undertakings to which the ADI has formally committed.
Investors should be clearly informed in writing that:
(a) their investments do not represent deposits or other liabilities of the ADI;
(b) their investments can be subject to investment risk, including possible delays in repayment and loss of income and principal invested; and
(c) the ADI does not in any way stand behind the capital value and/or performance of the securities issued, or assets held, by the special purpose vehicle (SPV) except to the extent permitted under Prudential Standard APS 120 Funds Management and Securitisation and as specified in the documentation provided to investors.
The above written disclosures should be conspicuously provided in any marketing document and in any paper or electronic document inviting investment.[5] Any proposal to modify the requirements set out above is to be agreed with APRA. An ADI should ensure that any marketing or promotion of a scheme with which it is associated does not give any impression contrary to the disclosure requirements.
Generally, disclosures in documents inviting investment should be included as a stand‑alone item on the inside front cover of the documents. Where this conflicts with other statutory or regulatory requirements, variations to the presentation of the disclosure should be agreed with APRA.
Investors should provide a signed acknowledgement indicating that they have read and understood the required disclosures. To ensure the validity of the acknowledgement, the signature should appear in close proximity to the disclosures to be acknowledged.
It is recognised that the issuance and trading of certain types of securities are sometimes undertaken in an electronic environment. While disclosure requirements should be capable of being satisfied in such circumstances, market arrangements may make it impractical to obtain the signed acknowledgements referred to above. In such circumstances, where securities are issued:
(a) in substantial parcels; and
(b) there is no application form or equivalent documentation completed by prospective investors,
a signed acknowledgement by investors will not be required.
Where an ADI has a limited ability to ensure the required level of disclosure (and signed acknowledgements), compliance with disclosure standards may be relaxed following consultation with APRA. This exemption will not be available where the ADI is the “sponsor”, “manager”, “trustee” or “responsible entity” of the scheme, or where the ADI permits the use of its name, badge, logo or any other identifier in the marketing of the scheme.
Badging
An ADI may allow its logo or trademark to be used in marketing investment products of third‑party institutions, including related entities, where:
(a) the “name” and/or “badge” of the other party providing the product features prominently in all advertising material, marketing documentation and documentation inviting investment or participation in a product;
(b) the respective roles of the two parties are explained clearly and prominently in any documentation inviting investment or participation in the product – including the extent to which each party is responsible for the safety and performance of the product; and
(c) the disclosure and acknowledgement requirements in paragraphs 3 and 6 are fully satisfied.
Separation of funds management and securitisation schemes
Funds management and securitisation schemes should stand clearly separate from any ADI involved in the schemes, and there should be clear limits governing the extent of that involvement. Any undertakings given by an ADI to a SPV and/or investors should be subject to the ADI’s usual approval and control processes. Such undertakings should be expressed clearly in the legal documentation of the scheme, and must be fixed as to time and amount.
An ADI should not:
(a) have any ownership or beneficial interest (except as provided for in paragraph 12) in a SPV;
(b) include the word “bank”, “building society”, “credit union”, “authorised deposit-taking institution”, or “ADI” in the name of the SPV; or
(c) have any of its directors, officers or employees on the board of a SPV unless the board is made up of at least four members. The ADI may be represented by one director in a board of four to six members and by no more than two directors in a board with seven or more members.
Requirements (a) and (c) in paragraph 11 do not apply to:
(a) an entity which is involved in the capacity of pure “trustee” or “custodian”;
(b) a life insurance company and its statutory funds regulated by APRA or equivalent regulatory authorities overseas;
(c) an “approved trustee” or “custodian” established under provisions of the Superannuation Industry (Supervision) Act 1993 or like legislation overseas;
(d) “common trust funds” established pursuant to legislation and complying with Australian Securities and Investments Commission Policy Statement 32; or
(e) a “responsible entity” established under the Managed Investments Act 1998, or similar entities established under like statutory provisions overseas.
An ADI, in its capacity as an authorised deposit-taking institution, should not act in any circumstances as a manager, trustee, responsible entity or any similar role. Any such involvement should be conducted through a stand-alone subsidiary or other associate that is not itself an ADI. Where an ADI’s subsidiary or associate acts in such a role, the ADI itself should ensure that a clear distinction exists between itself and the subsidiary or associate concerned.