APRA has reviewed the licensing framework for authorised deposit-taking institutions, and proposes what may prove a smoother pathway for aspiring banks.
A discussion paper yesterday outlines proposals aimed at improving the licensing process “by making it clearer, quicker and more supportive of new entrants to the banking sector.”
These proposals seek to reduce the time and cost associated with obtaining a banking licence, APRA said.
These reforms are aimed squarely at fintechs, but fintechs will need to be mindful that APRA is profoundly cynical when it comes to bank licensing.
Six fintech neobanks have withdrawn from the Australian banking sector in recent years, with no losses to depositors.
The current licensing framework for ADIs was introduced in 2018 with the aim of better supporting new entrants, including by introducing the Restricted ADI (RADI) pathway.
Since then, APRA has licensed 17 new banks, with around half of these being domestic start-ups.
These new entrants, APRA said, “have experienced mixed outcomes, with success ultimately determined by the viability of their business model and ability to raise capital.”
The likes of Volt, Islamic Money Australia and International Bank of Australia all pulled the pin over capital raising dilemmas.
Only one neobank, Judo, is enjoying any commercial success.
APRA said it assessment is that “the current licensing framework has been effective in supporting new entry to the banking sector while also holding new entrants to suitably robust standards of risk management.
“However, reflecting on the experiences of recent new entrants and benchmarking against international better practice, APRA has identified opportunities to improve the framework.
“These relate to improving the efficiency of the licensing process by providing greater clarity around licensing expectations and timeframes.”
APRA is proposing:
• Clearer licensing expectations. APRA is proposing to replace existing licensing expectations set out in guidelines with a more explicit and targeted set of formal licensing criteria. These criteria would codify APRA’s existing expectations and provide applicants with greater clarity on the requirements for a banking licence.
• Quicker and more transparent licensing decisions. To streamline the licensing process, APRA is proposing that applicants would have 12 months from submitting their application to demonstrate they meet the new licensing criteria. Once the 12 months have concluded, APRA would target a licensing decision within three months.
The current RADI pathway looks like being killed off by this review.
APRA is also proposing to make all licensing decisions public, including instances where a licence application is refused.
Given the latter, it is likely many fintechs will withdraw their applications at the last minute, rather than wear the humiliation of an APRA announcement that their bid was unsuccessful.