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    APRA Consults on ARS 720.1, Finalizes Licensing Approach

    August 11, 2021

    The Australian Prudential Regulation Authority (APRA), the Australian Bureau of Statistics (ABS) and the Reserve Bank of Australia (RBA) issued a letter to consult on changes to ARS 720.1, the reporting standard on ABS/RBA loans and finance leases. APRA proposed to amend ARS 720.1 to accurately align with the latest version of APS 220, the prudential standard on credit risk management that was published in December 2019. The comment period for this consultation ends on September 07, 2021 and the changes are proposed to be effective from January 01, 2022. Thus, APRA will delay implementing the November 2020 updates to ARS 720.1 until this time. In addition, APRA finalized the revised approach to licensing and supervising new authorized deposit-taking institutions, thus publishing the response paper on the proposed approach, the final information paper, and two guidelines on licensing for locally incorporated institutions and overseas banks.

    The revised approach to licensing follows a review of the existing licensing regime for the authorized deposit-taking institutions and aims to incorporate lessons learned since the launch of the restricted institution licensing pathway in 2018. Post consultation, the final position of APRA remains largely consistent with its original proposals, with the most significant clarifications relating to milestones in the progression of a license application. Under the finalized approach: 

    • Restricted institutions must achieve a limited launch of both an income-generating asset product and a deposit product before being granted a license.
    • There is increased clarity about capital requirements at different stages for new entrants, aimed at reducing volatility in capital levels and facilitating a transition to the methodology for established authorized deposit taking institutions over time.
    • New entrants are expected to have a more advanced contingency plan to respond to financial stress, including an option to execute the authorized deposit taking institution's orderly and solvent exit from banking business.

    The new approach comes into effect immediately, although much of the information package is simply a formalization of existing practice. APRA also published guidelines on licensing for locally incorporated institutions and overseas banks. These guidelines are intended to assist entities in navigating the licensing process. The guidelines outline the licensing process, the type of support and guidance applicants can expect to receive from APRA, the minimum criteria to be addressed by applicants under the restricted and direct licensing pathways, and the minimum supporting information APRA expects with applications, for applicants to demonstrate they have met the relevant prudential requirements to be granted a license. 


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    Comment Due Date: September 07, 2021

    Keywords: Asia Pacific, Australia, Banking, ARD 720.1, APS 220, Credit Risk, Licensing Regime, Reporting, EFS, Data Collection, APRA

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