Who needs an authorised deposit-taking institution (ADI) licence?

Under the Banking Act 1959 (the Banking Act), it is an offence to conduct banking business in Australia without the proper authority. If your business intends to conduct banking business, you need an ADI licence from APRA giving you the authority to conduct banking business in Australia.

Subsection 5 (1) 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. Businesses that only offer lending products and do not take deposits generally do not require an ADI licence.

The Banking Act only allows corporations to carry on banking business in Australia. This means APRA cannot consider applications from associations, partnerships or unincorporated entities.

Locally-incorporated ADIs

All entities intending to undertake banking business and take retail deposits must become locally incorporated ADIs. This requires applying for an ADI licence under APRA’s ADI licensing framework.

The ADI licensing framework sets minimum licensing criteria that apply to all applicants for a locally incorporated ADI licence. In demonstrating that they meet the Criteria, APRA’s expectations of applicants will be proportionate to each applicant’s strategy, business mix, risk profile, size and complexity.

Prospective applicants are expected to familiarise themselves with the ADI licensing framework before contacting APRA’s licensing team to discuss a licensing application.

Learn more about APRA’s domestic ADI licensing framework.

Overseas Banks

Overseas banks seeking to establish a presence in Australia have options depending on the activities they intend to undertake. Overseas banks seeking to service wholesale clients have two pathways: 

1. Representative Office; and
2. Foreign Authorised Deposit-taking Institution branch (Foreign ADI). 

A Representative Office may undertake liaison, relationship management and market research activities but cannot conduct banking business. APRA's consent is required to establish a Representative Office. 

A Foreign ADI may undertake banking business with wholesale clients. It forms part of the same legal entity as its head office, unlike a locally incorporated ADI subsidiary. Foreign ADIs are not subject to APRA's capital requirements but must comply with other prudential and regulatory requirements applicable to their Australian operations.

Foreign ADI applicants must satisfy APRA that they are subject to adequate supervision in their home jurisdiction, have obtained consent from their home supervisor to establish operations in Australia, and are operationally ready to commence banking business. APRA generally expects Foreign ADIs to maintain a meaningful banking presence in Australia and for banking business conducted in Australia to be booked in Australia.

An overseas bank that wishes to conduct banking business for retail clients in Australia must establish a locally incorporated subsidiary and become licensed as a locally incorporated ADI. A locally incorporated ADI is a separate legal entity from its overseas parent and is required to meet local capital requirements and all prudential requirements on a stand-alone basis, including governance requirements such as maintaining a local board. These subsidiaries would be subject to APRA’s licensing framework for locally incorporated ADIs discussed above.

APRA’s Guidelines for Overseas Banks Operating in Australia describe the pathways available to overseas banks seeking to establish a presence in Australia, including Representative Offices and Foreign ADI branches, and set out APRA's expectations for authorisation and ongoing supervision.

Purchased payment facility providers

A purchased payment facility (PPF) is a facility under which a holder of stored value makes payment to another person on behalf of the user of the facility. Regulatory oversight of PPF providers is split between APRA, the Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia (RBA). APRA authorises large PPF providers whose facilities are widely available and accepted as a means of payment and are redeemable for Australian dollars on demand by the user.

PPF providers form a special class of ADI that is licensed to undertake a limited range of banking activities. A PPF provider licence is subject to a number of conditions imposed under the Banking Act.

If you have an ADI licence and are authorised to carry on general banking business, you are considered to already be authorised to be a PPF provider. You are not required to obtain any additional authorisation or meet any additional prudential requirements.

The Government has proposed reforms that would give APRA new responsibilities for the prudential regulation of large stored-value facility (SVF) providers, including tokenised SVFs. Smaller providers would remain solely under ASIC oversight. To prepare for this role, APRA is developing a new prudential framework for large SVF providers and working with ASIC on joint guidance to support implementation. APRA plans to publicly consult on its new proposed prudential framework once legislation is finalised – the timing of this is subject to Government. In the interim, applicants seeking to offer purchased payment facilities should continue to apply under the existing purchased payment facility licensing framework.

Learn more about the Government’s new regulatory framework for payment service providers: Payments licensing reforms | Treasury.gov.au.

Financial Sector (Collection of Data) Act 2001

If your business is only proposing to provide finance and is not proposing to take deposits, then you do not require an ADI licence from APRA. However, your business may still be required to be registered by APRA under the Financial Sector (Collection of Data) Act 2001. For more information on the registration requirements, see the relevant pages on the APRA website.

Applying to use restricted words under the Banking Act

Banks play a trusted role within the community. It is therefore important that the Australian public has confidence about whether they are dealing with an authorised bank that is subject to APRA’s prudential regulation. 
A financial business (other than an ADI) must obtain consent from APRA before using a restricted word or expression. These words include bank, banker and banking, but also extend to similar words or expressions, even if they are not in English, such as neobank, banc or banq.

The intent is to limit the use of restricted terms by financial businesses that are not ADIs to very rare and unusual circumstances.

ADI licence applicants may wish to reserve a company (legal entity) and/or register a business (trading) name which includes a restricted word. APRA will only accept applications for consent to do this, once a valid ADI licence application has been lodged. If consent is granted by APRA, it will usually be subject to conditions, such as not using the company and/or business name publicly prior to licensing.

Non-financial businesses, and financial businesses not seeking an APRA licence, can find more information about applying to APRA to use restricted words.

External Credit Assessment Institution (ECAI) recognition

Authorised deposit-taking institutions (ADIs) may use credit assessments provided by APRA-recognised External Credit Assessment Institutions (ECAIs) when calculating regulatory capital requirements for certain exposures.

The Guidelines on Recognition of an External Credit Assessment Institution set out APRA's eligibility criteria, application requirements and recognition process for ECAIs.