The Australian Prudential Regulation Authority (APRA) has released for consultation a new draft licensing framework for locally-incorporated Authorised Deposit-taking Institutions (ADIs) as well as a new three tier approach, following the Council of Financial Regulators’ Review into Small and Medium-sized Banks. Background.
The draft framework consists of draft ADI Licensing Criteria and draft ADI Licensing Guidelines.
The three key changes to the ADI licensing framework are:
* Replacing the existing guidelines with legally effective licensing criteria. Applicants must demonstrate that they meet the ADI Licensing Criteria within 12 months of submitting a licensing application;
* Discontinuing the Restricted ADI (RADI) pathway given its limited take-up and the challenges that new entrants using this pathway have faced in developing sustainable business models; and
* Publishing all licensing decisions including refusals, to improve the transparency of APRA’s decision-making.
Third tier for Most Significant Financial Institutions
APRA has also confirmed it will introduce a formal three-tiered approach to regulation proportionality within the banking prudential framework.
APRA’s new framework will introduce a third tier of Most Significant Financial Institutions (MSFIs) for banks with total assets greater than $300 billion.
It will also raise the asset value threshold for banks to qualify as a Significant Financial Institution (SFI) from $20 billion to $30 billion, and automatically provide a 12-month transition period when a regulated institution moves to a higher tier.
APRA also commits to providing non-SFIs with additional time to comply with new and revised prudential requirements when it is appropriate to do so.
The changes will take effect from 1 July 2026.
The MSFI threshold of $300b is equivalent to around 5 per cent of system assets.
APRA will review the threshold on a regular basis to ensure it remains appropriate.
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Author: David Jacobson
Principal, Bright Corporate Law
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About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.
