An institution seeking to be prudentially regulated as an authorised deposit-taking institution (ADI) is required to be authorised under the Banking Act 1959 (the Banking Act).
The Australian Prudential Regulation Authority (APRA) is responsible for the authorisation process.
Section 5 of the Banking Act defines ‘banking business’ as consisting of both taking deposits (other than as part-payment for identified goods or services) and making advances of money, as well as other financial activities prescribed by regulations made under the Banking Act.
The Banking Act only allows corporations to carry on banking business in Australia, which means APRA cannot consider applications from partnerships or unincorporated entities. ADIs are subject to rigorous and close supervision by APRA, which requires the ADI to comply with a range of requirements contained in Prudential Standards and provide comprehensive data to APRA under Reporting Standards. APRA has a range of powers it can exercise should an ADI not comply with any of the requirements imposed by APRA.
A key component of APRA's prudential framework is the requirement to hold capital. Click here for an illustration of the application of APRA's capital requirements to an ADI.
Applications for authorisation under the Banking Act are to follow the ADI Authorisation Guidelines. Should an institution wish to apply for authorisation, the following steps will take place:
- a preliminary consultation between APRA and the prospective applicant to discuss the applicant’s plans to carry on banking business in Australia;
- the submission of a draft application and relevant information, as detailed in the Authorisation Guidelines; and
- APRA’s review of the application, including meetings with senior officers of the prospective applicant and onsite reviews.
Applicants will be required to pay a licensing fee and be subject to an annual supervisory levy.
Generally, the timetable for the licensing process depends on the comprehensiveness and quality of the material provided by the applicant and the applicant's ability to meet APRA's requirements from day one.