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Australia’s Banking Regulations 2020: A Guide for Financial Institutions

In a move to ensure stability and protect depositors, Australia’s banking regulator, APRA, has outlined its expectations for new entrants into the country’s financial sector. The Banking Act 1959 requires all financial institutions conducting banking business in Australia to hold an Authorised Deposit-Taking Institution (ADI) licence from APRA.

Licensing Pathways

APRA offers two licensing pathways for locally-incorporated ADIs:

  • Direct Pathway: suitable for entities with existing resources and capabilities
  • Restricted Pathway: allows new entrants to develop their capabilities over a period of up to two years before meeting the full prudential framework

Overseas Banks

Overseas banks seeking to conduct banking business in Australia must establish either an Australian branch or a locally-incorporated subsidiary. Foreign ADIs are not subject to capital requirements, but will need to meet other local regulatory requirements.

  • Local governance arrangements, such as a local board, are also required

Purchased Payment Facility Providers

APRA authorises large purchased payment facility providers whose facilities are widely available and accepted as a means of payment. PPF providers form a special class of ADI that is licensed to undertake a limited range of banking activities.

Financial Sector (Collection of Data) Act 2001

Entities providing finance without taking deposits do not require an ADI licence from APRA, but may still be required to register under the Financial Sector (Collection of Data) Act 2001.

Restricted Words

APRA requires financial businesses (other than ADIs) to obtain consent before using restricted words or expressions, such as “bank”, “banker”, and “banking”. As an ADI licence applicant, registration of a company or business name including a restricted word may also require APRA’s consent.

Key Takeaways

  • All financial institutions conducting banking business in Australia must hold an ADI licence from APRA.
  • Locally-incorporated ADIs can choose between the direct and restricted licensing pathways.
  • Overseas banks must establish either an Australian branch or a locally-incorporated subsidiary to conduct banking business in Australia.
  • PPF providers are subject to APRA’s prudential framework.
  • Financial businesses not seeking an ADI licence must register under the Financial Sector (Collection of Data) Act 2001.

In light of these regulations, financial institutions operating in Australia are advised to carefully review and comply with APRA’s requirements to ensure stability and protect depositors.