Banking (prudential standard) determination No. 6 of 2006 - Prudential Standard APS 120 - Funds Management and Securitisation
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Managing
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Funds management and securitisation schemes usually involve an entity acting as “manager”. An ADI, in its capacity as an authorised deposit‑taker, cannot act as a manager. Subsidiaries or associates of an ADI can act as a manager, provided that the management agreement meets conditions (a)-(e) in paragraph 7 above. A member of an ADI acting as manager may also receive a performance-related payment for its role as manager, as long as the provisions described in paragraph 9 are met.
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Where a managing agreement does not meet the conditions above, the ADI will be required to hold capital against the assets it is managing as if they were held on its balance sheet.
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An ADI, acting as manager, may enter into a contractual undertaking to provide a limited buy‑back facility to repurchase securities from investors provided:
(a) any obligation to buy back is specified in the management agreement and limitations on the entity’s obligations are prominently and clearly noted in the documentation associated with the issue of the securities;
(b) the obligation to buy back is entered into only as part of a management facility provided by the entity. The obligation should terminate immediately if the entity ceases to act as manager; and
(c) the undertaking of the entity to buy back is capped at a set Australian dollar amount.
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A buy‑back facility should be treated as a credit enhancement (refer Guidance Note AGN 120.2 Credit Enhancement (AGN 120.2)). The ADI should ensure the potential effect of buy‑backs is considered in its liquidity management plans.
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The above provisions do not apply where the entity is required by statute to provide a buy-back facility or exercises a completely discretionary right to buy back investments in special circumstances (e.g. such as personal hardship). Investors should, however, be put on notice that any buy-backs under these circumstances need to be undertaken at market prices and may invoke interest penalties. It is expected that over the life of a funds management or securitisation scheme the total value of such buy-backs would not be substantial relative to the amount of securities on issue.