APRA Guidelines for Authorisation of Authorised Deposit Taking Institutions – Overview and Summary of Requirements

  • By: Staff Editor
  • Date: March 20, 2013
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In September 2012, the Australian Prudential Regulation Authority (APRA) released guidelines to assist APRI regulated institutions/authorised deposit-taking institutions in complying with prudential requirements and to provide guidance on APRA’s view of good practice.
APRA's authorisation process guidelines:
  • apply to prospective applicants seeking an authority to carry on banking business (in Australia)
  • outline the minimum criteria to be addressed by applicants and the necessary information and documents to be submitted with an application.
Applicants seeking an authority to carry on banking business in Australia should apply in writing to APRA. The application process involves preliminary consultation between APRA and the prospective applicant, submission of a draft application and other relevant information and finally APRA’s review of the application.
The overall licensing process could take three to 12 months. Applicants can provide selected, specialised services rather than a full range of banking services on authorisation.
Summary of key requirements of the authorisation process:
Trading names
  • An ADI which intends to use a trading name, other than its registered company name should seek permission from APRA to use a restricted expression in that trading name.
  • The Agency expects the ADI using the trading name to clearly disclose:
    • general marketing information, account agreements and other contractual documentation provided to customers ( irrespective of whether the trading name includes a restricted expression or not) and
    • that the trading entity is a trading name, division or other operating arrangement of the licensed ADI, as appropriate.
Authorisation criteria for ADIs (Authorised Deposit-taking Institutions)
  • APRA will only authorise prospective applicants with competency and commitment to conduct banking business with integrity, prudence on a continuing basis.
  • Authorisation criteria are applicable to all applicants, including mutually owned applicants as well as foreign bank applicants intending to establish branches or locally incorporated subsidiaries.
  • All applicants should comply with applicable prudential requirements from the commencement of their banking operations and should make attempts to familiarise themselves with these standards.
  • Applicants should be aware that modified prudential requirements may also be set by APRA on a case-by-case basis, if necessary.
  • The regulatory agency will assess the adequacy of start-up capital for prospective applicants on a case-by-case basis based on the scale, nature and complexity of the operations as proposed in the business plan.
  • Applicants should have a minimum of $50 million in Tier 1 capital in order to operate as banks.
  • Applicants should ensure that APRA capital adequacy requirements are met from the commencement of their banking operations.
  • An ADI should maintain a risk-based capital ratio. Newly established ADIs may be subject to a higher minimum capital ratio in their formative years, depending on the risk profile of the proposed operations.
  • Applicants should satisfy the requirements in respect of ownership interests in ADIs
  • Foreign banks should also have a wide spread of ownership interests unless exempted from the provisions.
  • All substantial shareholders of an applicant should demonstrate to APRA that they are competent enough - in the sense of being well-established and financially sound entities.
  • APRA expects its shareholders to demonstrate that their involvement in the ADI represents a long-term commitment and that they are willing to contribute additional information, if necessary.
Prospective applicants:
  • should satisfy the regulatory requirements with regard to the composition and functioning of the Board
  • should ensure that they have policies in place and that delegated persons are qualified, competent enough to perform their duties
  • should provide APRA with authorisation so as to seek details of these aspects if necessary
Risk management and internal control systems
Applicants should ensure that proposed (or existing) risk management and internal control systems are sufficient and apt for monitoring / limiting risk exposures (of both domestic /offshore operations).
APRA will assess the established policies / procedures only after taking into account
  • the size, nature and complexity of the operations,
  • the volume of transactions undertaken,
  • the proposed organisational structure,
  • geographical distribution of the business.
Applicants should ensure that their compliance processes/operations/ systems are adequate and appropriate for ensuring compliance with APRA’s prudential standards and other applicable requirements. The Regulatory Agency will consider the size, nature and complexity of the operations during assessment of the compliance operations.
Information and accounting systems
  • All ADIs should submit data to APRA of the reporting standards and confirm that their information/ accounting systems are adequate for maintaining up-to-date records of all transactions and commitments undertaken.
  • Applicants should demonstrate that their systems are capable of producing all required statutory /prudential information within the set timelines from commencement of their banking operations and that the outsourcing of material data processing is in compliance with APRA’s outsourcing requirements.
  • Assessment of overall adequacy of information and accounting systems is done (by APRA) with regard to the integrity, security of the systems and arrangements for business continuity management.
External and internal audit arrangements
  • Prospective applicants should demonstrate that necessary arrangements have been established with external auditors so as stay in compliance with the prudential requirements.
  • The external auditor is expected to report to the regulatory agency on:
             a) observance of APRA’s prudential standards and requirements
             b) compliance with statutory requirements and conditions on the ADI authority (if any)
             c) reliability of information supplied to APRA for prudential supervision purposes
             d) matters which may have the potential to prejudice the interests of depositors of the ADI
             e) issues between the ADI and external auditor/ APRA under the tripartite arrangements
  • Applicants are also required to stay compliant with APRA requirements on adequacy of internal audit arrangements.
Supervision by home supervisor
  • Each prospective applicant is assigned a responsible supervisor who is the main line of contact for the entity on all APRA-related matters and in the authorisation process.
  • Home supervisor monitors the foreign bank applicant on a consolidated basis and foreign bank applicants should receive consent from their delegated supervisor for the establishment of a banking operation in Australia.
  • APRA grants permission to operate foreign ADIs to applicants belonging to authorised banks only. Foreign applicants should prove that they are subject to adequate prudential supervision in their home country.
Foreign ADIs - Restrictions on deposit-taking activities
  • APRA allows authorities to carry on banking business in Australia to foreign ADIs provided they are subjected to a condition specifically restricting the acceptance of retail deposits by their corresponding Australian branches.
  • Foreign ADIs:
    • need not maintain endowed capital in Australia 
    • are not subjected to any capital-based large exposure limits
    • are not permitted to accept funds or initial deposits (less than $250,000)
    • can accept deposits / funds from incorporated entities, non-residents and their employees
  • According to the prudential requirements - there should be controlled policies and procedures in place to ensure that any credit balances (in case of credit card accounts) are promptly identified and repaid
Disclosure to depositors of non-application of depositor protection provisions
  • Foreign ADI should disclose to prospective depositors the regulatory requirements that do not apply to them and information for obtaining APRA’s prior approval for disclosure (at the time of filing the application for authorisation)
  • Applicants should ensure that an application for approval (for the manner of disclosure):
  1. has a written disclosure statement (for opening of an initial account, the transfer  of an account from an existing entity /lodgement of an initial deposit)
  2. has the statement written in plain clear language/ concise and prominently displayed
  3.  will have the statement described in summary form with the key elements of requirements that do not apply to foreign ADIs
  • Foreign ADIs should ensure that controlled systems and procedures are in place so that depositors opening an initial account or making an initial lodgement of funds are provided with the written disclosure statement.
  • External auditors of foreign ADIs should report APRA on compliance with the disclosure requirements - as part of the audit arrangements in applicable prudential standards.
Dual Operation of Foreign Banks
  • Each operation of a foreign bank (simultaneously holding an authority to operate as a foreign ADI) should conduct its business in Australia in a clear way to prove its legal status and authorisation.
  • The foreign ADI’s branch and the subsidiary ADI should hold:
  1. separate books of accounts
  2. separate statistical (including prudential) reporting to APRA
  3. separate internal controls
  4. separate systems of delegations
  5. separate chief executive officers responsible for the proper management and prudent operation of the foreign ADI and subsidiary ADI
  • Banking transactions between the foreign ADI and the subsidiary ADI should be separate both on commercial terms and conditions.
Application procedures
Preliminary consultation
  • APRA expects its applicants to communicate in the initial stages itself (before the submission process) regarding their plans so that it can guide them (through various stages) about the required format and content for the application.
  • Electronic versions of applications are usually preferred by the APRA. Prospective applicants should contact the Reserve Bank of Australia (RBA) for information to establish an Exchange Settlement Account (ESA).
Processing and notification
  • Applications will be further processed, approved by APRA depending on the completeness of information, submission of all relevant documents by applicants.
  • Authorisations will also be made available in the APRA’s website and in public journals. The regulatory agency has the right to impose conditions upon an authority after approval and may impose, vary or revoke conditions on it afterwards.
Submission of application
Applicants should submit relevant information and supporting documents (along with additional information, if necessary for assessing the application) either to carry on banking business in Australia / to operate as a locally incorporated ADI or a foreign ADI.
Two copies of the final application (duly signed by two Directors of the applicant) should be submitted to APRA - along with other information and supporting documents. The applicant should notify the regulatory agency at the earliest (in writing before a decision is made) if any changes are made to the information provided.

Additional Resources

Read the APRA ADI Authorisation guidelines in full here.


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