The Australian Prudential Regulation Authority is consulting interested parties about a new approach to licensing and supervising new deposit-taking institutions or ADIs.
In an information paper, APRA expresses its desire to impose stronger requirements on any body that wants it to grant it a banking licence, along with closer supervision for new entrants as they try to establish themselves. APRA has already reviewed its ADI licensing regime in an attempt to absorb lessons that it learnt from its Restricted ADI licensing pathway, on which it embarked in 2018.
The information paper says that APRA wants to see the following things.
- Restricted ADIs must achieve a limited launch of both an income-generating asset product and a deposit product before being granted an ADI licence.
- Capital requirements must be clearer at different stages for new entrants and aimed at reducing volatility in capital levels and facilitating a transition to APRA's methodology for established ADIs over time.
- New to be expected to have more advanced plans for exiting the financial services industry than now. These should concentrate on returns of deposits as an option.
APRA Deputy Chair John Lonsdale believes that the new approach would support newly licensed banks because it would make them better equipped to succeed. He told reporters: “This revised approach effectively targets key risks for new entrants, setting a higher bar for gaining a bank licence, while enhancing competition by making it more likely new entrants can find their feet and gain a firm foothold in the market. New entrants will start from a stronger capital position and be ready to attract depositors and earn revenue immediately; they’ll receive additional supervisory attention from APRA until they’re firmly established; and – should they ultimately not succeed – they will be better placed to exit the industry in an orderly fashion.”
The comment period closes on 30 April.