APRA finalises new Restricted ADI licensing framework
In an information paper released today, APRA set out the new Restricted ADI framework, which comes into effect immediately. The framework is designed to assist potential new entrants to the banking industry, particularly small firms with limited financial resources, to navigate the licensing process.
Under the new framework, eligible entities can seek a Restricted ADI licence, allowing them to conduct a limited range of business activities for two years while they build their capabilities and resources.
The framework establishes the eligibility criteria, minimum initial and ongoing requirements and application of the prudential and reporting standards during the restricted phase of operation. It also acts as a guide to help Restricted ADI applicants during the licensing process.
APRA Chairman Wayne Byres said a Restricted ADI licence was a tangible milestone for applicants, allowing limited activities at an earlier stage of the licensing process than had previously been the case.
"The Restricted ADI framework is designed to balance the competing objectives of encouraging competition while maintaining safety and stability in the financial system," Mr Byres said.
"By making it easier for aspiring ADIs to enter the market, APRA hopes to see consumers benefit from enhanced competition and potentially innovative new business models. However the limitations imposed on Restricted ADI licensees ensure the public can retain confidence that the safety of deposits with all ADIs is adequately safeguarded."
APRA has sought to ensure the new approach does not create material competitive advantages for new entrants compared with incumbents, or compromise financial stability. Restricted ADIs are expected to seek investment, and build resources and capabilities, in order to meet APRA's full prudential framework and commence full-scale banking business. If a licensee is unable to meet these standards within the two-year licence period, it must exit the industry.
The new licensing option was proposed by APRA last August with the release of the discussion paper, Licensing: A phased approach to authorising new entrants to the banking industry. In a separate document also published today, APRA has released its Response to Submissions paper, outlining the feedback and suggestions received, and how APRA has responded to them in determining the final Restricted ADI framework.
APRA Chairman Wayne Byres said: "Feedback from the consultation process indicates the framework strikes the right balance between facilitating new entrants, while continuing to safeguard depositors. APRA has already received several applications from companies seeking a Restricted ADI licence. The finalisation of the framework should help them build their businesses with greater confidence and clarity as to how they should engage with APRA."
The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding $6 trillion in assets for Australian depositors, policyholders and superannuation fund members.