Licensing guidelines for authorised deposit-taking institutions
Who needs an authorised deposit-taking institution 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 any business that can be classed as banking business, you need an authorised deposit-taking institution (ADI) licence from APRA giving you the authority to conduct banking business in Australia.
Part 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. This means APRA cannot consider applications from associations, partnerships or unincorporated entities.
Licensing routes for authorised deposit-taking institutions
Achieving an ADI licence requires significant resources and capabilities which can take time to develop. To assist potential applicants, APRA has two routes available to become an ADI: the direct route and the restricted route.
- The direct route is suitable if you have existing resources and capabilities with which to establish an ADI. It allows you to conduct your intended banking business from the granting of your licence. You must demonstrate you meet the full prudential framework and be ready to commence banking business.
- The restricted route is suitable if you do not currently have the resources and capabilities to establish an ADI and need time to develop them. The restricted route allows you to conduct limited banking business for a maximum of two years before needing to meet the full prudential framework. This allows you time to develop your capabilities and resources, facilitating your entry into the banking sector.
The route that is suitable for you will depend on your particular circumstances. You should discuss with APRA the most suitable route for your proposition.
For more information on the two routes, including eligibility, minimum requirements and application guidance for the restricted route please see the information paper on the Restricted ADI framework.
Institutions which are authorised to carry on banking business in a foreign country and who want to conduct banking business in Australia can apply to APRA to conduct banking business in Australia as a foreign ADI. Foreign Banks are granted an ADI licence subject to a condition specifically restricting the acceptance of retail deposits by their Australian branches. This is because depositors with foreign ADIs do not have the same protections under the Banking Act as depositors with Australian ADIs.
Foreign ADIs do not have to maintain capital in Australia, as such foreign bank applicants must satisfy APRA that they are subject to adequate supervision in their home country and must have received consent from their home supervisor for establishing a banking operation in Australia.
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 Investment Commission (ASIC) and the Reserve Bank of Australia. APRA licenses PPF providers who have payment obligations over $10 million (with deposit-like features) and are widely available (more than 50 users).
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 guidelines outline APRA’s authorisation process for ADIs applying via the direct route including the minimum criteria to be addressed by applicants and the necessary information required to be lodged with an application.
Applicants who are eligible for the restricted route should refer to the guidelines for information on the minimum criteria and necessary information they will be required to provide to APRA to demonstrate they meet the full prudential framework and progress to an ADI licence.
Before you lodge your application for an ADI or PPF licence, ensure you have read and are familiar with the relevant prudential framework, including relevant legislation, prudential standards and prudential practice guides.
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.
Restricted words under the Banking Act
Under section 66 of the Banking Act, it is an offence in Australia to use certain restricted words, such as authorised deposit-taking institution (ADI), bank, banker, or banking, in relation to a financial business, except where APRA has granted consent or exemption, or where a statutory exemption applies. The purpose of the restriction is to assure the public that a ﬁnancial business using words like bank is in fact authorised to carry on banking business. The intent is to limit the use of restricted terms by financial businesses that are not ADIs to very rare and unusual circumstances. The restriction also applies to words of similar meaning to the restricted words (whether or not in English), and combinations with other words, letters or symbols (e.g. ‘neobank’).