APRA has just released a discussion paper on proposed revisions to the licensing framework for ADIs.

The Australian Prudential Regulation Authority (APRA) is attempting to boost competition in the banking sector in Australia by reducing barriers for new entrants to the industry. A new “restricted ADI licence” will allow applicants to begin limited operations while still developing the full range of resources and capabilities necessary to meet the requirements of the prudential framework.

The proposed changes are similar to frameworks around the world such as in Singapore, Hong Kong and the United Kingdom.

This innovative initiative by APRA is to allow for greater competition and technological innovation in the banking sector without compromising the strong and secure financial system. The new phasing in approach allows for new entrants to develop the requisite systems and allows APRA to observe activities in a ‘controlled environment.’ APRA is optimistic that the reforms will allow smaller groups and technology savvy groups to have a better chance of entering the sector. Under the current framework, entrants considered as ‘non-traditional’ (tech based for example) would have difficulty proving that they can meet the requirements of the prudential framework.

Community confidence is still paramount and APRA needs to ensure all deposits with ADI’s are adequately safeguarded. APRA also needs to ensure that any new approach does not create competitive advantages for new entrants over incumbents, or compromise financial stability.