The Australian Prudential Regulation Authority (APRA) has proposed changes to its bank licensing framework aimed at simplifying and speeding up the licensing process and better supporting new entrants to the banking sector.
APRA is responsible for licensing new banks, credit unions and building societies - collectively known as authorised deposit-taking institutions (ADIs). In doing so, APRA seeks to strike the right balance between supporting new entry and competition while upholding robust regulatory standards that safeguard financial safety and stability.
In 2018, APRA revised the ADI licensing framework to encourage competition and innovation in the banking sector, including by introducing the Restricted ADI (RADI) pathway. As part of its standard practice of reviewing practices and policies, APRA has recently reviewed the framework to reflect the experiences of recent new entrants and ensure it remains fit for purpose in a fast-evolving operating environment.
Through the review, APRA found that the current framework has been effective in supporting new entry to the banking sector while also maintaining suitably robust regulatory standards. APRA also identified opportunities to improve the framework, particularly through increasing the efficiency of the licensing process by providing greater clarity around licensing expectations and timeframes.
As a result, APRA is proposing the following improvements to its ADI licensing framework:
- Clearer licensing expectations. APRA would replace existing licensing expectations set out in guidelines with a more explicit and targeted set of formal criteria.
- Quicker and more transparent licensing decisions. Future applicants would have 12 months from submitting their application to demonstrate they meet APRA's new licensing criteria. Following this period, APRA would target a licensing decision within three months, with all decisions made public.
Additionally, APRA is seeking feedback on the future of the RADI pathway, which has received limited take-up in recent years. While APRA believes the RADI pathway has helped encourage new bank entrants, the pathway has not been as simple and effective as intended.
APRA Member Therese McCarthy Hockey said the changes would make the licensing process simpler and more efficient for applicants, while ensuring newly licensed banks are better placed to become sustainable.
"Although the success of a new bank is ultimately determined by the viability of its business model and product offering, it is important that the licensing process is not unnecessarily burdensome and supports timely entry into the banking sector. Our intention is for these changes to help aspiring banks navigate the licensing process more efficiently and reduce the time and cost associated with obtaining a banking licence.
"The proposed changes are part of APRA's broader efforts to better support competition and efficiency in the banking sector and aligns with the objectives of the Council of Financial Regulators' and Australian Competition and Consumer Commission's recent review into small and medium-sized banks."
Consultation on the proposed changes is open for submissions until 31 October 2025. A discussion paper outlining the changes is available on the APRA website at: Improving the licensing framework for authorised deposit-taking institutions.
