Proposed changes to the Financial Sector (Collection of Data) Act 2001 (Act) could broaden the Australian Prudential Regulatory Authority’s (APRA’s) powers to make rules for non-bank finance providers. This focus paper summarises the proposals and how the changes might affect your business.
Currently, the Act requires that certain non-bank finance providers must register with APRA and comply with applicable APRA reporting standards.
Broadly speaking, a corporation which has assets of $5 million or more (or which together with certain “related” corporations has assets of $5 million or more) must register with APRA if:
- its sole or principal business activities are borrowing money and providing finance; or
- the total debts due to the corporation from providing finance exceed 50% of its total Australian assets; or
- the corporation provides finance in the course of selling retail goods, and the total debts due to the corporation and its “related” corporations from providing finance exceed $25 million.
The concept of “providing finance” is broad. It includes, for example, lending on a secured or unsecured basis, supplying goods by hire-purchase, selling retail goods on payment terms of 3 months or more, acquiring debts, and purchasing bills of exchange, promissory notes, debentures or other securities (other than shares).
Once a corporation has registered with APRA, it must comply with any relevant APRA reporting standards. These standards can relate to financial reporting, auditing requirements and other reporting obligations.
The Commonwealth Treasury recently conducted a consultation about proposed changes to the Act which concluded in August 2017. If these changes are introduced in their current form, there will be new requirements and monetary thresholds for when corporations must register with APRA.
Under the proposal, any corporation whose business involves providing finance will be required to register with APRA and comply with relevant APRA reporting standards if:
- the total debts due to the corporation and any “related” corporations from providing finance exceeds $50 million; and
- the principal amount of the finance provided or originated by the corporation and any “related” corporations in a financial year exceeds $50 million.
What the changes could mean for you
At this stage, it is uncertain when (or whether) the changes will be introduced. However, it is clear that if the changes come into force, the focus of the new regime will be on the volume of finance provided by a business, rather than whether that finance forms a significant part of a business.
Currently, if your business involves providing finance incidentally to the main aspects of your business – for example, you are a construction equipment supplier which occasionally supplies equipment to businesses on hire-purchase terms – then it’s unlikely that you would have to register under the Act unless your hire-purchase debts exceed 50% of your total assets.
Under the new proposed regime, however, you will be caught by the Act if you provide finance in excess of $50 million in a financial year, even if your financing activities represent only a small proportion of your business.