Licensing guidelines for authorised deposit-taking institutions

Make sure you read APRA’s Licensing Process in conjunction with the information on this page.

Who needs an authorised deposit-taking institution (ADI) licence?

Under the Banking Act 1959 (the Banking Act), it is an offence to conduct banking business in Australia without the proper authority. If your business intends to conduct any business that can be classed as banking business, you need an authorised deposit-taking institution (ADI) licence from APRA giving you the authority to conduct banking business in Australia.

Part 5 of the Banking Act defines ‘banking business’ as consisting of both taking deposits (other than as part-payment for identified goods or services) and making advances of money, as well as other financial activities prescribed by regulations made under the Banking Act.

The Banking Act only allows corporations to carry on banking business in Australia. This means APRA cannot consider applications from associations, partnerships or unincorporated entities.

Locally-incorporated ADIs

APRA recognises achieving an ADI licence requires significant resources and capabilities which can take time to develop, that new ADIs have unique challenges and their risk profiles differ when compared to established ADIs. 

APRA’s approach to the licensing and supervision of new entrant ADIs seeks to strike an appropriate balance between supporting entities to enter and thrive in the banking sector, while ensuring financial system stability and protecting the interests of depositors. 

The below information paper sets out APRA’s expectations for current and prospective new entrants. It outlines APRA’s expectations and approach for each step of the new entrant’s pathway to sustainability, including:

1. ADI licensing: the two pathways available to obtain an ADI licence and the application process
2. Restricted ADIs: APRA’s prudential and supervisory approach to operating with a Restricted ADI licence
3. New ADIs: following either the restricted or direct pathway to a licence, adjustments to APRA’s prudential and supervisory frameworks to support the building of a sustainable business; and
4. General information: to guide all new entrants in setting up an ADI.

Licensing pathways for locally-incorporated ADIs 

To encourage a wide variety of applicants, APRA has two pathways available to become an ADI: the direct pathway and the restricted pathway.

• The direct pathway is available if you have the existing resources and capabilities to immediately establish an ADI. It allows you to conduct your intended banking business from the granting of your licence. You must demonstrate you meet the full prudential framework and be ready to commence banking business.
• The restricted pathway is suitable if you do not currently have the resources and capabilities to establish an ADI and need time to develop them. The restricted pathway allows you to conduct limited banking business as a Restricted ADI, for a maximum of two years, before needing to meet the requirements of the full prudential framework. This pathway can assist you in seeking the investment required to operationalise your business and test your operational model, while progressing compliance with the full prudential framework and your application for an ADI licence.

The pathway that is suitable for you will depend on your particular circumstances. Please contact APRA’s licensing team at licensing@apra.gov.au to discuss the most suitable pathway for your proposition.

Full details of the licensing process for both the direct and restricted pathways, including the need for early engagement with APRA, application requirements and the assessment process, are set out in the below guidelines.

Overseas Banks

An overseas bank that wishes to conduct banking business and provide services to wholesale clients in Australia may do so as a foreign ADI and establish an Australian branch. An Australian branch of a foreign ADI forms part of the same legal entity as its head office. Foreign ADIs are not subject to capital requirements by APRA, but will need to meet other local regulatory requirements applicable to its business. 

An overseas bank that wishes to conduct banking business and provide services to retail clients in Australia will need to establish a locally-incorporated subsidiary. A locally-incorporated subsidiary ADI is a separate legal entity from its overseas parent and will need to meet local capital requirements and all local regulatory requirements on a stand-alone basis. This includes having local governance arrangements, such as a local board.

Overseas bank applicants must satisfy APRA that they are subject to adequate supervision in their home country and must have received consent from their home supervisor for establishing a banking operation in Australia. Please refer to the guidelines below if you are considering establishing a banking presence in Australia:

Purchased payment facility providers

A purchased payment facility (PPF) is a facility under which a holder of stored value makes payment to another person on behalf of the user of the facility. Regulatory oversight of PPF providers is split between APRA, the Australian Securities and Investment Commission and the Reserve Bank of Australia. APRA authorises large PPF providers whose facilities are widely available and accepted as a means of payment, and are redeemable for Australian currency on demand by the user.

PPF providers form a special class of ADI that is licensed to undertake a limited range of banking activities. A PPF provider licence is subject to a number of conditions imposed under the Banking Act.

If you have an ADI licence and are authorised to carry on general banking business, you are considered to already be authorised to be a PPF provider. You are not required to obtain any additional authorisation or meet any additional prudential requirements.

On 6 November 2020, the government released the report of the Council of Financial Regulators’ (CFR) review of the regulation of stored-value facilities (SVFs) in Australia. The CFR’s report can be found at: https://www.cfr.gov.au/publications/policy-statements-and-other-reports/2020/regulation-of-stored-value-facilities-in-australia/. APRA welcomes the Government endorsement of the recommendations of the CFR review and is continuing to work with CFR agencies to develop an updated regulatory approach.

Financial Sector (Collection of Data) Act 2001

If your business is only proposing to provide finance and is not proposing to take deposits then you do not require an ADI licence from APRA. However your business may still be required to be registered by APRA under the Financial Sector (Collection of Data) Act 2001. For more information on the registration requirements, see the relevant pages on the APRA website.

Applying to use restricted words under the Banking Act

It is important that the general public has confidence about whether or not they are dealing with an authorised bank due to the trusted role banks hold in the community. As such, a financial business (other than an ADI) must obtain consent from APRA before using a restricted word or expression. These words include bank, banker and banking, but also extend to similar words or expressions, even if they are not in English, such as neobank, banc or banq.

The intent is to limit the use of restricted terms by financial businesses that are not ADIs to very rare and unusual circumstances. 

As an ADI licence applicant, you may wish to register a company (legal entity) and/or business (trading) name which includes a restricted word. Once you have lodged your licence application with APRA you can request APRA’s consent to do this. If consent is granted by APRA it will usually be subject to conditions, such as not using the company and/or business name publicly prior to licensing. 

Non-financial businesses and financial businesses not seeking an APRA licence can find more information about applying to APRA to use restricted words.