APRA Proposes Updates to Licensing Regime for Banking Institutions

The revised approach follows a review of authorized deposit taking institution licensing regime of APRA, which was announced last August and found that the approach needed a greater focus on longer term sustainability, rather than the short-term ambition of receiving a license. The information paper sets out a clear, transparent, and consistent approach to how APRA applies the prudential and supervisory frameworks to the new entrants, both at the point of licensing and during the period the new entrant is building a sustainable business. The paper also covers key differences in the application of the prudential framework of APRA to each category of authorized deposit-taking institution—namely New authorized deposit-taking institution, Restricted authorized deposit-taking institution, and Established authorized deposit-taking institution. Adjustments are made to these frameworks for Restricted authorized deposit-taking institutions and New authorized deposit-taking institutions to address the particular risk profiles of these entities. APRA has adjusted the application of its frameworks to focus on the areas demonstrated to be of higher risk to new entrant authorized deposit taking institutions. Among the changes outlined in the information paper: 

• Restricted authorized deposit-taking institutions must achieve a limited launch of both an income-generating asset product and a deposit product before being granted an authorized deposit-taking institution 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 more advanced planning for a potential exit, including a focus on return of deposits as an option.

The proposed revised approach effectively targets key risks for new entrants, setting a higher bar for gaining a bank license. New entrants will start from a stronger capital position and be ready to attract depositors and earn revenue immediately; they will receive additional supervisory attention from APRA until they are firmly established and—should they ultimately not succeed—they will be better placed to exit the industry in an orderly fashion. 

Related Links

• Media Release
• Discussion Paper (PDF)
• Information Paper (PDF)

Comment Due Date: April 30, 2021

Keywords: Asia Pacific, Australia, Banking, Bank Licenses, Licensing Regime, Regulatory Capital, APRA