APRA released an update of its guidance on the use of the term ‘bank’ on 14 August 2015.
Under sections 66 and 66A of the Banking Act a person carrying on a financial business cannot use the term ‘bank’ or any variation of ‘bank’ without the approval of APRA. This is designed to prevent customers being misled into assuming non-bank businesses are regulated by APRA.
Industry has long been confused about whether non-banks can refer to themselves as ‘non-bank lenders’, and use words such as ‘internet banking’.
What words are restricted?
APRA limits use of ‘bank’, ‘banker’, ‘banking’ and ‘ADI’, and by extension words or expressions with like meanings (such as ‘banque’).
Further, restricted words may not be used as part of other words. This has implications for a number of commonly-used phrases, such as ‘internet banking’ and ‘telephone banking’. Alternative phrases, such as ‘internet access services’ should be considered by non-bank businesses.
Negative uses of the word ‘bank’ (such as ‘non-bank’ or ‘we are not a bank’) could arguably be a restricted term. Whilst this is unlikely to mislead customers, APRA could take a risk-averse approach on use of these phrases.
What has changed in the updated guidance?
- There is a new process to request APRA’s consent to use of a prohibited word.
- The prohibition applies to ‘financial businesses’. Paragraph 13 includes finance brokers, financial services comparison websites, specialist financial services directory websites, and foreign businesses providing banking business in a foreign country as ‘financial businesses’.
What has not changed?
Provided that certain conditions are met, APRA may grant an ADI with $50 million tier 1 capital unrestricted consent to use the words ‘bank’, ‘banker’ and ‘banking’ in its company name, and to describe or advertise the business.
A credit union or building society may receive authorisation from APRA to use the expressions ‘banker’ and ‘banking’ in marketing and branding material even though it doesn’t meet the tier 1 capital requirement.
A body corporate related to a credit union may use ‘banking’ in marketing and branding material, provided the expression is not used in a misleading way.
Absent special circumstances, APRA will grant a foreign bank with authorisation to maintain a representative office in Australia consent to use ‘bank’ in the title of its office in Australia, where this is part of the foreign bank’s corporate name.
The updated guidance does not clarify whether a non-bank lender can use the term ‘non-bank’. Some laws such as the National Consumer Credit Protection Act permit the use of prohibited words when they are used in the negative, such as ‘non-X’. However, this is not the case in the Banking Act, or in the guidance.
‘Non-bank’ is a commonly used phrase amongst lenders to distinguish themselves from ADI lenders. Saying ‘non-bank’ does make it very clear that the lender is not holding themselves out to be a bank, and could not mislead or deceive. However, technically, as they are in a financial business, the prohibition still applies.
The no-risk approach is not use the word ‘bank’, even in the negative. However, it is a very commonly used term. There is not really any replacement term to quickly distinguish non-banks. This is a gap where further guidance would be valued by the industry.
Internet banking and phone banking
Any entity not authorised by APRA to use the word ‘bank’ should still refer to internet banking as ‘internet services’ or ‘internet access’ or similar.