November 21, 2017

November 21, 2017

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November 20, 2017

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APRA Proposes Reforms to the ADI Licensing Regime

On 15 August 2017, the Australian Prudential Regulating Authority (APRA) published a discussion paper entitled Licensing: A phased approach to authorising new entrants to the banking industry. The Discussion Paper proposes changes to APRA’s licensing framework with the introduction of a new restricted ADI licences regime.

This phased approach enables entrants who require time to build resources and capabilities, such as fintech start-ups, to conduct banking related business by reducing conventional barriers to entry such as the requirement to hold at least $50 million in start-up capital.

These proposed changes to the prudential licensing regime are similar to approaches being currently undertaken in the United Kingdom, Hong Kong and Singapore.

In order to obtain a restricted licence a potential entrant must, among other things, satisfy APRA’s following requirements:

  • provision of a sustainable and viable strategy to fully comply with the prudential framework;

  • credible plans to progress to an full ADI licence within 2 years;

  • a minimum of $3 million in start-up capital plus wind up costs; and

  • directors and senior management to satisfy APRA’s ‘fit and proper’ standards.

Restricted ADI licencees must then comply with the following ongoing requirements and obligations:

  • limit the maximum size of deposits from a single depositor to $250,000 and the aggregate amount of deposits to $2 million;

  • hold a minimum capital adequacy of $3 million plus wind up costs or 20 per cent of total asset holdings (whichever is greater);

  • maintain minimum liquid holdings equal to 20 per cent of total balance sheet liabilities;

  • only offer restricted products and services; and

  • comply with the reporting and disclosure requirements.

APRA invites written submissions from all interested parties on the Discussion Paper by 30 November 2017.

Felix Charlesworth contributed to this article.

Copyright 2017 K & L Gates

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About this Author

Jim Bulling, KL Gates, financial services lawyer, funds management attorney
Partner

Mr. Bulling's practise focuses on banking and financial services and he acts for a range of entities in the financial services and funds management industry. His clients include Australian and international investment managers, banks, trustees of superannuation funds, wholesale and retail investment trusts, funds management companies and financial planning groups.

His main areas of focus include banking and financial product disclosure issues, financial services compliance issues, financial product distribution issues and superannuation and...

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