APRA Consults on ARS 720.1, Finalizes Licensing Approach

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. 

Related Links

• Press Release on ARS 720.1
• Consultation Letter on ARS 720.1
• Draft ARS 720.1 (PDF)
• Press Release on Licensing
• Response Paper (PDF)
• Information Paper for New Entrants (PDF)
• Guidelines for Locally Incorporated Institutions (PDF)
• Guidelines for Overseas Banks (PDF)

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