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The Phased Licensing Approach

Thursday 17 August 2017

The Australian Prudential and Regulation Authority (APRA) has released a discussion paper looking a new phased licensing system for ADIs.

The paper, Licensing: A phased approach to authorising new entrants to the banking industry, looks at some of the ways barrier entries can be lowered while still maintaining the confidence of consumers.

“APRA’s proposed changes to its licensing approach are intended to deliver benefits to the community through facilitating increased innovation and competition in the banking industry, while still maintaining a resilient, sound and stable financial system,” said Wayne Byres, APRA Chairman, in statement released by the prudential regulator.

According to the discussion paper:

New entrants provide opportunities to enhance competition and innovation in the banking industry. However, evidencing that it can meet all of the requirements of the prudential framework prior to conducting business can be difficult for a new applicant, particularly in the case of new and non-traditional institutions. APRA is therefore proposing to enhance opportunities for new entrants through the introduction of a phased approach to licensing ADIs.

In the May Budget, Treasurer Scott Morrison said on competition in the banking industry that they would work to lower the barriers for new entrants.

Specifically, Morrison mentioned:

  • 15 per cent ownership cap, whether through the existing ministerial discretion or legislative change.
  • The prohibition on the term ‘bank’ by ADIs with less than $50 million in capital will also be lifted by legislation to allow them and other ADIs to benefit from the reputational advantages of the term.
Diagram of the new Proposed Phased Approach:

It points out that while APRA’s licensing standards are generally aligned with international standards and licensing standards, other jurisdictions have taken steps to ‘facilitate new entrants and encourage innovation’.

The paper identifies the Hong Kong Monetary Authority (HKMA), which has introduced a sandbox for authorised deposit-taking institutions, the Monetary Authority of Singapore (MAS), which has also introduced a sandbox that is extended to Fintechs, and the Prudential Regulatory Authority (PRA) with the Financial Conduct Authority (FCA) of the UK having two-phased authorisation option.

It will be interesting to see what impact the final guidelines will have on the market, and to see who some of the new entrants to the market will be under the new licensing regime.

All submissions to this discussion paper must be in by 30 November 2017. APRA expects to release the updated licensing guidelines for ADIs and phased licensing in the second quarter, 2018.