APRA Guidelines on Authorization of Specialist Credit Card Institutions – 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 authority for credit card issuing in Australia and/or authority for acquiring business as a specialist credit card institution (SCCI) in Australia.
  • The guidelines, governed by Section 11 of the Payment Systems (Regulation) Act of 1998 and the Banking Regulations 1996, detail the authorization criteria for SCCIs in Australia
  • Though the SCCIs are a special class of Authorized Deposit taking Institutions (ADIs), an SCCI can perform only credit card issuing and acquiring and related business. An SCCI cannot maintain deposit accounts.
  • Application to the Australian Prudential Review Authority (APRA) to become an SCCI must be in accordance with section 9 of the Banking Act. Foreign credit card banks can also apply in order to operate SCCIs in Australia
Restricted Words and Expressions for SCCIs
  • An SCCI cannot call itself a ‘bank’ by the virtue of being an SCCI
  • The complete list of restricted words and expressions for SCCIs is included in section 66 of Banking Act
  • The SCCI while calling itself an ADI must specify that the deposits are necessarily related to credit cards and are not deposit accounts
Authorization Criteria for SCCI: Minimum Requirements an SCCI  has to meet
  • The authorization of SCCIs is as per the Banking Act
  • Authorization requires applicants with capacity and commitment to engage in credit card issuing and/or acquiring with integrity, prudence, competence and long term sustainability
  • SCCI applicants must comply with the prudential standard of APRA
  • No minimum capital is required for an SCCI applicant. Foreign SCCI applicants are not required to maintain endowed capital in Australia
  • SCCIs will be subject to continuous and ongoing capital adequacy checks by APRA
  • The Financial Sector Shareholding Act (FSSA) which governs ownership in SSCIs mandates that maximum shareholding of individual or group of shareholders in an SCCI is 15%.
  • All shareholders must establish to the APRA that they are well established and financially strong.
  • SCCI applicants with request for a higher limit must submit relevant reasons to APRA
Criteria for the Composition of SSCI Management
  • Applicants must satisfy board composition requirements in ADI prudential standard
  • SSCIs must have a board with at least five directors, a majority of whom, including the Chairman, are non-executives (meaning executives not belonging to the SCCI and its parent or related companies)
  • Shareholders with less than 15% holding can have a maximum of one representation on the board. In case of foreign bank owned subsidies, the non-executive member of the board can be executive of foreign parent bank.
  • Directors and senior management of SSCIs must satisfy APRA requirements regarding experience, expertise, competence, integrity and reputation.
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
  • SCCIs must arrange for external audits. The external auditor must annually report to APRA the SCCI’s compliance with statutory banking requirements
  • Consent by banking home supervisor is a must
  • SCCI also requires to conduct internal audits which must be used in the external auditing
Information required to be submitted in the Application
  • Information on ownership, board, management, two year business plan, systems and controls, subsidiaries, etc. needs to be submitted in the application
  • Also required is the 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. is also required.
  • A statement from the home supervisor is required for the local SCCI while a subsidiary must provide all the above mentioned information about the parent company including a home supervisor certificate for the parent company’s latest performances and results.
  • In the application, the applicant must undertake to adhere to APRA guidelinesand 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
In Case of Dual Operations
  • In the case of dual authorization to act as an ADI and an SCCI, the business is to be conducted keeping independent guidelines in mind and in such a manner that makes clear the existence of separate authorities
  • This includes having a separate book of accounts, separate prudential reporting to APRA, separate delegations and separate risk management and control systems

Additional Resources

Read the APRA Guidelines on Authorization of Specialist Credit Card Institutions in full here.

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