The Australian Prudential Regulation Authority (APRA) has released a discussion paper for consultation which proposes to introduce a phased approach to authorisation of Authorised Deposit Taking Institutions (ADIs).

The intention in introducing the new approach is:

  • to make it easier for applicants to navigate the ADI licensing process while at the same time ‘not materially lessening’ entry standards;
  • to support increased competition in the banking sector by reducing barriers for new entrants being authorised to conduct banking business, including those with innovative or otherwise non-traditional business models or those leveraging greater use of technology; and
  • to allow applicants to obtain a licence while still developing the full range of resources and capabilities necessary to meet the prudential framework.

Under the plan, APRA would be able to grant start-ups a “restricted” licence to become an authorised deposit-taking institution (ADI) – giving these firms a much faster pathway to becoming a bank.

To obtain a restricted licence, the business would need at least $3 million in capital, directors and senior managers would need to meet APRA’s “fit and proper” test, and the business would need to show it had reliable record-keeping systems.

Such businesses would not be able to take total deposits of more than $2 million, or individual deposits of more than $250,000. Deposits up to $250,000 are guaranteed by the government for all ADIs.

These caps would in effect prevent start-ups from operating as retail banks of any meaningful scale, but it is hoped the move will give businesses a chance to obtain a licence while they are still developing the capabilities needed to get a fully-fledged licence from APRA.

“APRA’s proposed changes to its licensing approach are intended to deliver benefits to the community through facilitating increased innovation and competition in the banking industry, while still maintaining a resilient, sound and stable financial system,” APRA chairman Wayne Byres said.

Restricted banking licences would be available for only two years, and if it became clear the business was not on track to develop its “capabilities and resources”, APRA would force them out of the industry.

The plan comes as the government is aiming to ramp up the competitive pressure on Commonwealth Bank, Westpac, National Australia Bank and ANZ Bank, which between them control about 80 per cent of the market for household deposits and loans.

Separate draft legislation released by the government last month proposed to make it easier for ADIs to call themselves “banks”. Currently, ADIs need $50 million in capital to call themselves banks, but the government says it will scrap this limit.

Treasurer Scott Morrison said the changes were similar to those being introduced overseas, and they would lower the barriers to entry in the banking industry.

“A more competitive and innovative financial sector means more choice, lower prices and better service for Australian customers,” Mr Morrison said.

C. Yeates, “How start-ups with $3m in capital could get their banking P-plates”, The Sydney Morning Herald, 2017. [Online]. Available: [Accessed: 11- Oct- 2017].

“APRA consulting on proposal to increase competition in banking industry – APRA: Phased licensing: ADI Licensing: Financial Services: APRA consulting on phased approach to ADI licensing; increase competition in banking industry. Click through for summary. – MinterEllison”,, 2017. [Online]. Available: [Accessed: 11- Oct- 2017].