APRA Guidelines on Authorization of Providers of Purchase Payment Facility – Overview and Summary of Requirements

  • By: Staff Editor
  • Date: April 26, 2013
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These Australian Prudential Regulatory Authority Guidelines are meant for applicants requiring authorization to carry out banking services under Banking Act 1959 as provider of purchase payment facility (PPF Provider).
  • A PPF provider is either a person who provides PPF that is banking business under Regulation 3 of Banking Regulations or is a holder of stored value as defined in the Payment Systems (Regulation) Act 1998
  • Regulations and standards applicable to authorized deposit-taking institutions (ADI) also apply to a PPF provider
  • Only bodies corporate can be authorized as an ADI in Australia.
  • Application to the Australian Prudential Review Authority (APRA) to become a PPF provider must be in writing and in accordance with section 9 of the Banking Act.
  • Non-operating holding companies must hold a non-operating holding company (NOHC) certificate under the Banking Act
Authorization of PPF Providers – Primary Condition and Essence
  • PPF providers are authorized so that they can be allowed to do prudential supervision of PPF liabilities
  • Authorization and authorization criteria depend on whether the PPF provider has stored value at risk.
Conditions Imposed on PPF Provider Authorization
  • The PPF providers are restricted to conducting only banking business and restricted from accepting deposits for the purpose of making advances.
  • The PPF which calls itself an ADI must clearly inform all stakeholder that it is only providing PPF and not in the business of taking deposits
  • A PPF provider must exist as a stand-alone entity and avoid impacting PPF liabilities. The PPF provider can be engaged in closely related activities such as issuance and administration of PPF
  • Foreign entities are not allowed to accept initial deposits and funds from individuals and non-corporate institutions of less than A$ 250,000
  • Foreign entities are therefore not permitted to seek authorization for PPF providing under the Banking Act
  • A PPF provider must provide APRA with financial data on a periodic basis as specified in its ADI authority
Minimum Requirements for All PPF Providers: Including Restrictions and Ownership
  • Applicants must display to the APRA capacity and competence to provide PPFs with integrity, prudence and competence
  • The PPF provider must comply with all ADI prudential requirements. Applicants must familiarize themselves with prudential standards.
  • The PPF provider cannot use the word bank while describing its services.
  • The Financial Sector Shareholding Act (FSSA) which governs ownership in PPF providers mandates that maximum shareholding of individual or group of shareholders in a PPF Provider is 15%
  • All shareholders must establish to the APRA that they are well established and financially strong
  • Applicants with request for a higher limit must submit relevant reasons to APRA
  • Applicants need to be aware of APRA’s corporate governance requirements as included in Prudential Standard 510
Criteria Regarding Risk Management, Internal Systems, Auditing and Accounting
  • Applicants must have adequate policies and procedures for monitoring and managing credit risk, liquidity risk and operational risk.
  • Reporting arrangements between subsidies and parent companies must be adequate
  • Maintenance of data and records, security of systems, disaster recovery arrangements and transaction records must satisfy APRA
  • PPF providers must arrange for external audits. The external auditor must annually report to APRA the PPF provider’s compliance with statutory banking requirements
  • Consent by banking home supervisor is a must
  • PPF providers also require to conduct internal audits which must be used in the external auditing
Additional Criteria for Applicants with Stored Value at Risk
  • APRA will issue additional authorization criteria for PPF provider applicants with stored value at risk
  • These relate to adequacy of start-up capital which are mentioned in Prudential Standard APS III
  • Newly established PPF providers with stored value at risk will have a naturally higher minimum capital expectation and auditing. They will also be subject to ongoing capital requirements.
Information Required in the Application
  • Information on ownership, board, management, three year business plan, systems and controls, subsidiaries, etc. needs to be included in the application
  • The application should also include details such as name, history, initial capital, shareholder names, board structure, organizational structure and framework.
  • Further information such as business structure and financial data, recent audited financial statements, projections, key financial ratios, credit policy, liquidity management policy, accounting systems, material outsourcing arrangements, subsidiary details, control of operational risk, etc. are also required.
  • Details of existing or proposed subsidiaries and associates, the nature and scale of their business, and their proposed business relationship with the proposed PPF provider should be included
  • In the application, the applicant must undertake to adhere to APRA guidelines and provide necessary information to APRA at all times
Application Procedures
  • Preliminary consultation involves contacting APRA with application drafts
  • Submission of application involves submitting two final application copies with all necessary attachments
  • Processing and Notification are the final steps taken by the APRA on the applications received

Additional Resources

Read the APRA Guidelines on Authorization of Providers of Purchase Payment Facilties in full here.

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