APRA proposes reforms to the ADI Licencing Regime

By Jim Bulling and Felix Charlesworth

On 15 August 2017, the Australian Prudential Regulating Authority (APRA) published a discussion paper entitled ‘Licensing: A phased approach to authorising new entrants to the banking industry‘. The Discussion Paper proposes changes to APRA’s licensing framework with the introduction of a new restricted ADI licences regime.

This phased approach enables entrants who require time to build resources and capabilities, such as fintech start-ups, to conduct banking related business by reducing conventional barriers to entry such as the requirement to hold at least $50 million in start-up capital.

These proposed changes to the prudential licensing regime are similar to approaches being currently undertaken in the United Kingdom, Hong Kong and Singapore.

In order to obtain a restricted licence a potential entrant must, among other things, satisfy APRA’s following requirements:

• provision of a sustainable and viable strategy to fully comply with the prudential framework;
• credible plans to progress to an full ADI licence within 2 years;
• a minimum of $3 million in start-up capital plus wind up costs; and
• directors and senior management to satisfy APRA’s ‘fit and proper’ standards.

Restricted ADI licencees must then comply with the following ongoing requirements and obligations:

• limit the maximum size of deposits from a single depositor to $250,000 and the aggregate amount of deposits to $2 million;
• hold a minimum capital adequacy of $3 million plus wind up costs or 20 per cent of total asset holdings (whichever is greater);
• maintain minimum liquid holdings equal to 20 per cent of total balance sheet liabilities;
• only offer restricted products and services; and
• comply with the reporting and disclosure requirements.

APRA invites written submissions from all interested parties on the Discussion Paper by 30 November 2017.