Australia is planning to implement stricter requirements for companies seeking banking licences and increase monitoring of new entrants.
The move comes after a review of the licencing regime emphasised putting more focus on longer term sustainability.
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The Australian Prudential Regulation Authority (APRA), the banking regulator, has already initiated a consultation process on the new approach for licencing and supervising new authorised deposit-taking institutions (ADIs).
APRA also published an information paper outlining the potential changes.
It includes that a restricted ADI needs to achieve a limited launch of an income-generating asset product and a deposit product before securing an ADI licence.
The paper also calls for greater clarity around capital requirements at different stages for new entrants. The new banks are also expected to devise a potential exit plan to ensure orderly withdrawal.
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By GlobalDataThe consultation is scheduled to end on 30 April 2021.
APRA deputy chair John Lonsdale said: “Since launching the Restricted ADI regime three years ago, we’ve gained a deeper understanding of the challenges new and aspiring banks face as they try to establish themselves in an industry that is capital intensive and dominated by some of the best resourced companies in Australia.
“This revised approach effectively targets key risks for new entrants, setting a higher bar for gaining a bank licence, while enhancing competition by making it more likely new entrants can find their feet and gain a firm foothold in the market.
“New entrants will start from a stronger capital position and be ready to attract depositors and earn revenue immediately; they’ll receive additional supervisory attention from APRA until they’re firmly established; and – should they ultimately not succeed – they will be better placed to exit the industry in an orderly fashion.”
Notably, Australian neobank Xinja announced its intention to shut down in December last year after failing to secure necessary funding. APRA revoked its licence last month.
