The Australian Prudential Regulation Authority (APRA) has announced proposed changes to its bank licensing framework, aiming to streamline and expedite the licensing process while enhancing support for new entrants to the banking sector.
APRA oversees the licensing of new banks, credit unions, and building societies, collectively referred to as authorised deposit-taking institutions (ADIs). The authority seeks to balance the support for new entrants and competition with the necessity of maintaining robust regulatory standards that ensure financial safety and stability.
In 2018, APRA amended the ADI licensing framework to foster competition and innovation in banking, notably by introducing the Restricted ADI (RADI) pathway. Following a recent review, APRA has sought to evaluate the framework’s effectiveness in light of the experiences of new entrants and adapt it to a rapidly changing operational environment.
The review concluded that the current framework has largely been successful in facilitating new entries into the banking sector while upholding stringent regulatory standards. However, it also identified several opportunities for enhancement, particularly in increasing the efficiency of the licensing process through clearer expectations and defined timeframes.
To this end, APRA is proposing two significant improvements to its ADI licensing framework. Firstly, it aims to establish clearer licensing expectations by replacing the current guidelines with a more targeted set of formal criteria. Secondly, the licensing decisions would be expedited: applicants would have 12 months from the submission of their application to demonstrate compliance with the new criteria, after which APRA would target a licensing decision within three months, with all decisions made public.
Moreover, APRA is inviting feedback on the future of the RADI pathway, which has seen limited uptake in recent years. Although the authority acknowledges that this pathway has contributed to encouraging new bank entrants, it admits that it has not been as straightforward or effective as initially intended.
APRA Member Therese McCarthy Hockey expressed optimism about the proposed changes, stating that they would make the licensing process more straightforward and efficient for applicants, positioning newly licensed banks for better sustainability.
“Although the success of a new bank is ultimately determined by the viability of its business model and product offering, it is important that the licensing process is not unnecessarily burdensome and supports timely entry into the banking sector,” she noted. “Our intention is for these changes to help aspiring banks navigate the licensing process more efficiently and reduce the time and cost associated with obtaining a banking licence.”
These proposals are part of APRA’s broader strategy to enhance competition and efficiency within the banking sector, aligning with the objectives of the Council of Financial Regulators and the Australian Competition and consumer Commission’s recent review concerning small and medium-sized banks.