Last Friday, the Australian Prudential Regulation Authority (APRA) finalised its new Restricted Authorised Deposit-taking Institution (ADI) licensing process in Australia that came into effect immediately. New entrants to the banking industry will be able to apply for a Restricted ADI licence, which will have a lower barrier to entry than a full ADI licence, to assist their transition into the industry over a two-year period. This is a significant change as only one ADI licence has been granted to a non existing bank-affiliated entity in the past decade, which has rendered Australia’s start-up banking sector effectively non-existent.

Entities holding a Restricted ADI licence will be able to conduct limited low-risk banking business, while seeking investment and developing their resources and capabilities in order to comply with the prudential framework, for a period of two years. Restricted ADIs will be subject to an aggregate deposit limit of $2 million and must disclose to all its customers that they are operating on a restricted licence.

APRA will engage with and provide assistance to such entities during this period. If APRA forms the view that the entity will not be able to comply with the prudential framework after the two year period, it will require the entity to cease its banking business and exit the industry.

In order to maximise the chances of successfully obtaining a Restricted ADI licence, applicants should:

  • engage with APRA at an early stage to discuss relevant requirements;
  • ensure compliance with all application requirements, including capital requirements (approximately $4 million at a minimum) and having proper policies in place; and
  • have a credible strategy which details the applicant’s plan to meet the prudential framework within the two year period.

APRA has stated that it may take 3 to 18 months to assess an application. To date, only volt bank limited has been granted a Restricted ADI licence. You can view APRA’s guidance here