The Australian Prudential Regulation Authority (APRA) has released a discussion paper on proposed revisions to the licensing framework for authorised deposit-taking institutions (ADIs) by creating a new Restricted ADI licence.
APRA has been reviewing its approach to licensing new entrants, with a view to making it easier for potential applicants to understand and navigate the licensing process while at the same time not materially lessening entry standards that serve as important depositor protections.
The purpose of the new Restricted ADI licence is to allow applicants to obtain a licence to begin limited operations while still developing the full range of resources and capabilities necessary to meet the prudential framework.
Depending on feedback and experience with this approach, APRA envisages that it will consider a similar phased approach in other prudentially-regulated sectors in the future.
Conditions
APRA envisages that the Restricted ADI licence would appeal more to start-ups with limited financial resources and (at least initially) a simple product set.
Applicants will need at least $3 million plus wind-up costs as a minimum amount in start-up capital, and directors and senior management will need to meet APRA’s fit and proper standards. Additionally, applicants will need to demonstrate the capability to deliver reliable records or systems to provide information necessary for the Financial Claims Scheme (FCS).
APRA proposes that certain prudential requirements will not be fully applicable to an institution with a Restricted ADI licence. Given the concessions provided, APRA expects that a Restricted ADI will not be actively conducting banking business. Such requirements would include a limit on the maximum size of deposits from a single depositor ($250,000) and on the aggregate amount of deposits ($2 million); minimum capital adequacy and liquid holdings; restricted product and service offerings; and reporting and disclosure requirements.
APRA is proposing to limit the Restricted ADI licence period to a maximum of two years. This period reflects the expected timeframe that institutions may need to fully meet the prudential framework. APRA will be assessing the institution’s progress during the Restricted ADI licence phase. Should it become clear that an institution will not fully develop its capabilities and resources by the end of the Restricted ADI licence phase, APRA will require it to exit the banking industry.
