The Australian Prudential Regulation Authority (APRA) has commenced consultation on an updated approach to licensing and supervising new authorised deposit-taking institutions (ADIs).
In an information paper published today, APRA has outlined stronger requirements for being granted a banking licence, and closer supervision of new entrants as they seek to establish themselves.
The revised approach follows a review of APRA’s ADI licensing regime aimed at incorporating learnings since the launch of the Restricted ADI licensing pathway in 2018. The review, announced last August, found the approach needed a greater focus on longer term sustainability, rather than the short-term ambition of receiving a licence.
Among the changes outlined in the information paper:
- Restricted ADIs must achieve a limited launch of both an income-generating asset product and a deposit product before being granted an ADI licence;
- There is increased clarity around capital requirements at different stages for new entrants, aimed at reducing volatility in capital levels and facilitating a transition to the methodology for established ADIs over time; and
- New entrants are expected to have more advanced planning for a potential exit, including a focus on return of deposits as an option.
APRA Deputy Chair John Lonsdale says the updated approach would support newly licensed banks so they are better equipped to succeed.
“Since launching the Restricted ADI regime three years ago, we’ve gained a deeper understanding of the challenges new and aspiring banks face as they try to establish themselves in an industry that is capital intensive and dominated by some of the best resourced companies in Australia.
“This revised approach effectively targets key risks for new entrants, setting a higher bar for gaining a bank licence, while enhancing competition by making it more likely new entrants can find their feet and gain a firm foothold in the market.
“New entrants will start from a stronger capital position and be ready to attract depositors and earn revenue immediately; they’ll receive additional supervisory attention from APRA until they’re firmly established; and – should they ultimately not succeed – they will be better placed to exit the industry in an orderly fashion,” Mr Lonsdale said.
APRA is seeking feedback on the information paper. The consultation closes on 30 April 2021.
Copies of the information paper and a high-level discussion paper are available on APRA’s website at: Licensing for authorised deposit-taking institutions.