What you need to know
- APRA has confirmed that it will now offer a 'restricted' licensing framework in addition to the existing 'direct' licensing framework
- Applicants which are granted a Restricted ADI licence will be able to carry on limited banking business for a maximum period of two years while they develop their capabilities and resources
- Following the two year Restricted ADI licence period, Restricted ADIs are expected to either progress to a full ADI licence or exit the industry
- APRA has now established a dedicated Licensing Unit to liaise with all potential ADI applicants from the pre-application stage through to licence approval
- APRA intends to update its ADI authorisation guidelines (last published in April 2008) in due course to reflect the new restricted licensing framework
APRA has finalised its licensing framework for "restricted ADIs"
Direct licensing route
Under the existing licensing route, an ADI applicant must demonstrate to APRA's satisfaction that it meets the full suite of prudential requirements prior to being granted a banking licence. The direct route is generally suited towards applicants who intend to operate with sophisticated, higher risk or larger scale business models from the commencement of business. APRA may grant an ADI licence with or without conditions.
Restricted licensing route
Under the new restricted licensing route, eligible applicants will be granted a Restricted ADI licence for a maximum period of two years before they must meet the full requirements of the prudential framework. Following the end of the two year restricted period, a Restricted ADI must either progress towards a full ADI licence or wind up its banking business and exit the industry. APRA has indicated it will only grant an extension to the two year restricted period in exceptional circumstances.
The restricted route is appropriate for applicants who wish to carry on limited, lower risk banking business during their start-up phase while they develop the resources and capabilities required of full ADI licensees (APRA has stated this is likely to preclude applicants that are part of an existing ADI or foreign bank). Reflecting this, applicants for a Restricted ADI licence will be able to submit a proportionately shorter application that focuses on the essential elements of the prudential framework
Restricted ADI requirements
The following table sets out the requirements that an applicant will need to meet in order to be granted a Restricted ADI licence.
| Capital |
A Restricted ADI must at all times hold minimum capital of the higher of: $3 million plus a resolution reserve (which APRA intends to generally set at $1 million); or 20% of adjusted assets |
| Business operations |
A Restricted ADI should not grow "significantly" beyond a $100 million balance sheet
A Restricted ADI can actively market its business and its new products to the general public, but only in order to develop a wait-list of customers who can only apply for the products once the Restricted ADI has gained its full ADI licence |
| Disclosure |
A Restricted ADI may use the restricted terms "ADI", "bank", "banker" and "banking" without approval from APRA
A Restricted ADI must provide a disclosure statement that clearly states that it is a Restricted ADI and explains to customers the risks of transacting with it |
| Liquidity |
A Restricted ADI is subject to a Minimum Liquidity Holdings requirement of the higher of:
- 20% of liabilities;
- the total value of protected accounts plus an amount equal to the resolution reserve; or
- for Restricted ADIs which are holders of stored value, 100% of the stored value at risk plus the total value of protected accounts plus an amount equal to the resolution reserve
|
| Business plan |
A Restricted ADI must provide a full business plan at the time of application that details a credible strategy for meeting the full prudential framework by the end of the restricted period |
| Exit plan |
A Restricted ADI must have a credible exit plan that sets out how it would exit the industry if it is unable to meet the prudential framework by the end of the restricted phase, or if it decides its business model is not viable, or if it comes under stress |
| Deposit limit |
A Restricted ADI will be subject to a deposit limit of $2 million on the aggregate balance of all protected accounts and a deposit limit of $250,000 on the aggregate balance of all protected accounts held by an individual account-holder |
| Reporting requirements |
A Restricted ADI will be exempt from the ADI reporting standards under the Financial Sector (Collection of Data) Act 2001 and must instead comply with a reporting standard that will apply to Restricted ADIs |
| Prudential standards |
A Restricted ADI must fully comply with APS 310 Audit and Related Matters, CPS 220 Risk Management, CPS 520 Fit and Proper and APS 910 Financial Claims Scheme |
New APRA Licensing Unit
APRA has replaced its previous decentralised approach to considering ADI licence applications with the formation of a new, dedicated Licensing Unit that will function as the central point of contact for all potential ADI applicants. It is expected that this new approach will allow applicants to engage with APRA through a more collaborative and iterative process. APRA has indicated that its Licensing Unit is open to engaging with potential applicants at an early stage to provide feedback on the prospects of an application and guidance on which licensing route is most appropriate for the applicant in light of its operations, sophistication and resources.
APRA's information paper setting out its Restricted ADI licensing framework can be found here.
Authors: Jonathan Gordon, Partner; Corey McHattan, Partner; Phil Trinca, Partner; Nicky Thiyavutikan, Senior Associate; Dominic Tran, Lawyer
