Over the past few years, the regulatory framework for businesses looking to enter the Australian banking sector has been substantially revised by the Australian Prudential Regulatory Authority (APRA). If your organisation is considering setting up a banking operation in Australia, having a specialised adviser guiding you through the processes can be key to your success.
With leading bank licensing credentials in the market, KPMG Australia can help you understand how to best position your strategy, navigate processes and apply for the right licence for your organisation.
Read on to understand the different licence types, processes and answers to common questions.
Banking licence types – ADI and RADI
There are two banking licences available in Australia: an authorised deposit-taking institution and a restricted authorised deposit-taking institution. These licences also apply to neobanks.
ADI licence
An authorised deposit-taking institution (ADI) licence is permission granted by APRA for an organisation to conduct banking business in Australia and is not limited by time.
ADI licence cost in AUD
$110,000 application fee
Definition and authority
An ADI that is not a Restricted ADI, has recently been granted an ADI licence and is subject to an adjusted supervisory approach.
An ADI licence is an authority granted by APRA under section 9 of the Banking Act to permit a body corporate to conduct banking business in Australia, with or without conditions, that is not limited by time.
Board and management
Majority independent board and committees in place. All key senior management identified. Meets requirements of APRA governance standards. Meets the requirements of the applicable accountability regime.
Liquidity
Meets requirements of APRA's liquidity standard.
Information technology
Fully developed – IT systems meet the requirements of relevant prudential standards and have regard to the expectations of PPGs and information papers.
Business continuity
Fully developed – meets requirements of APRA's business continuity management standard.
Capital
Finalised Internal Capital Adequacy Process (ICAAP). Meets requirements of all capital related prudential standards.
RADI licence
A restricted ADI (RADI) licence grants permission for an organisation to conduct banking business in Australia for a limited period, subject to requirements and restrictions. As a temporary licence, a RADI is often used while organisations prepare for their full ADI licence application.
RADI licence cost in AUD
$80,000 application fee, then $30,000 to progress to ADI
Definition and authority
A body corporate that holds a Restricted ADI licence.
An authority granted by APRA under section 9 of the Banking Act to permit a body corporate to conduct banking business in Australia, which is for a limited period and is subject to specific requirements and restrictions.
Board and management
High-level structure. Key personnel critical to Restricted ADI operations in place with senior roles critical to operations as an ADI identified and ready to be recruited. Meets the requirements of the applicable accountability regime.
Liquidity
High-level liquidity risk appetite and funding strategy covering liquidity requirements during the restricted phase. Sufficient financial resources so as not to breach the liquidity requirements during the restricted phase.
Information technology
Outline of technology strategy and implementation roadmap. Details of products, services and service providers selected/under consideration.
Business continuity
Not required however, Restricted ADI should be able to demonstrate how it will meet customer obligations in the event of a disruption – may form part of scenario planning in the business plan.
Capital
Capital management plan proportionate to the activities during the restricted phase.
KPMG’s Bank Licensing Team can help local and international organisations set up operations in Australia and obtain an ADI or RADI licence. Learn more about the steps we’ll take.
Entering the Australian banking market
If your organisation is considering setting up a banking operation in Australia, there are three common options you might consider: representative office, foreign branch and subsidiary. Each has unique approval processes and levels of permission.
Three common entity types
Representative office
What: An overseas bank wishing to only perform liaison and research activities in Australia. It must not conduct banking business or activities related to the administration of banking business.
Supervision: Not subject to prudential supervision, but requires annual attestation of compliance.
Requirements: A letter from the overseas bank’s home supervisor to confirm it has permission to open a representative office in Australia.
Cost: $10,000 application fee, then $3,000 per year monitoring fee.
Foreign branch
What: An overseas bank wishing to conduct banking business and provide services to wholesale clients in Australia may do so as a foreign ADI – deposit-taking activities are limited to above AU$250,000.
Supervision: Some ADI standards apply in a modified manner, with limited governance requirements.
Requirements: Letter to APRA from the overseas bank’s home supervisor with approval to establish a branch in Australia and confirming it is in good financial standing and meets the prudential requirements.
Cost: $110,000 application fee.
Foreign subsidiary
What: A separate legal entity from an overseas bank’s parent. It will need to meet all local capital and regulatory requirements including having local governance arrangements, such as a Board. Generally, all banking activities are allowed with no limitations on customer type.
Supervision: All relevant ADI prudential standards apply.
Requirements: Letter to APRA from the overseas bank’s home supervisor with approval to establish a branch in Australia and confirming it is in good financial standing and meets the prudential requirements.
Cost: $110,000 application fee.
More information is available in the APRA overseas banking guidelines (PDF 1MB).
Applying for a bank licence – KPMG can help
KPMG offers a range of options and capabilities to help international organisations with their banking authorisation and licensing requirements. Here are key areas we support:
Licensing process – ADI, RADI and other licences
APRA’s application process is complex and requires significant time and resource investments from applicants.
The KPMG Licensing team can help you navigate the application requirements and support you throughout the journey with our expertise, market knowledge and specialised capabilities, including:
- an initial feasibility study
- business case presentation to the regulator
- business plan and financial projections
- other licence applications (AFSL, ACL)
- relevant tax and ASIC registrations
- Financial Sector Shareholdings Act (FSSA) and Foreign Investment Review Board (FIRB)
- development of core risk policies
- assistance with the APRA onsite preparation
- assistance with relevant APRA meetings.
Business plan and strategic value proposition
One of the requirements to secure an ADI or RADI is to prepare a detailed five-year business plan. KPMG can develop this for you, supporting your vision and go-to-market strategy including five-year financial projections, material risks and other core aspects of your risk framework.
KPMG will also help you define your strategic value proposition for entry into a new, competitive market and ensure your business plan effectively capitalises on this proposition.
IT requirements
The licensing process with APRA requires a number of documents to be completed to demonstrate readiness from an IT perspective.
KPMG’s Technology Advisory team has extensive experience in supporting licensing applications and can offer a variety of tailored services around technology, operating model and IT architecture, vendor selection frameworks and market scanning.
Regulatory reporting requirements
Organisations must be able to demonstrate to APRA that they are ready and able to operate in the Australian market. This includes a robust framework to meet their data quality and reporting requirements.
KPMG has a depth of experience in regulatory reporting as well as enhancing regulatory reporting operating models and data governance frameworks across the industry. Our deep knowledge is demonstrated through our work with a number of high-profile banks to remediate their data quality issues and other reporting matters under APRA’s requirements.
ASIC licences: AFSL and ACL
The Australian Securities and Investment Commission (ASIC) requires banks to be licensed to offer certain products and services. Two important licences KPMG can help you to attain are:
- Australian Financial Services Licence (AFSL) – this licence must be held from day one of any business providing financial services. There is an option for a limited AFSL in some circumstances.
- Australian Credit Licence (ACL) – this licence must be held from day one of any business providing credit services.
KPMG’s dedicated team of legal specialists can help you navigate ASIC requirements and receive or modify an AFSL or ACL.
Registrations – TFN and ARBN
In Australia, there are a series of registrations required for an entity to gain and maintain an ADI or RADI. KPMG will help you prepare the necessary documents and guide you through the application process.
The types of registrations include:
- Australian Registered Body Number (ARBN) – an ARBN allows an organisation to trade in all Australian states and territories. KPMG will ensure the availability of your business name, collate the necessary supporting documentation and prepare the forms to be lodged.
- Tax File Number (TFN) – all businesses operating in Australia must have a tax file number.
- Others – there may be other registrations required for tax purposes. KPMG can help you to identify which are relevant to your business, and help you apply.
Compliance with the Financial Sector (Shareholdings) Act 1998
The Financial Sector (Shareholdings) Act 1998 (FSSA) is a key piece of legislation protecting the Australian financial sector from monopolisation or unfair competition. The threshold for foreign and domestic acquirers under the FSSA is 20 percent.
KPMG can work with you to ensure your organisation is compliant with the Act, and if required, assist with the approval process where the 20 percent threshold needs to be exceeded.
Why choose KPMG for bank licensing assistance?
KPMG has market-leading credentials in the licensing space, including cross-jurisdictional expertise allowing us to tailor our approach to your needs.
Our tried and tested methodology delivers forward-looking insights that will allow you to successfully enter the Australian banking sector. We have successfully supported dozens of applications including high profile banks, global investment banks, international fintech companies and purchased payment facility providers from a number of different geographies such as Europe, the UK, the USA, Asia and Australia.
Contact KPMG’s bank licensing specialists
Applying for an Australian banking licence is complex. To find out how KPMG’s team of highly experienced professionals and specialists in APRA regulation, technology and legal can help your organisation, please contact us.
Geographic leads
KPMG’s multidisciplinary and multilingual teams can support you throughout your bank licensing journey.
Our geographic leads have a deep understanding of local regulatory requirements and can assist you in the language you are most comfortable speaking, including:
- Mandarin: Helen Zhi Dent (支巧玲).
- Korean: Sam Cho.
- Japanese: Keiichi Tsuzurahara.
- Vietnamese: Quang Dang.
- Hindi: Jai Patel.
Frequently asked questions
What is APRA?
The Australian Prudential Regulatory Authority (APRA) is the Australian Government regulator responsible for ensuring our financial system is stable, competitive and efficient. One of APRA’s responsibilities is to grant bank licences in Australia. Learn more about APRA.
What is ASIC?
ASIC is Australia's integrated corporate, markets, financial services and consumer credit regulator. They are an independent Australian Government body that are set up under, and administer, the Australian Securities and Investments Commission Act 2001 (ASIC Act). Learn more about ASIC's role.
How successful is KPMG in gaining licence approval for clients?
Every applicant KPMG has supported with their bank licensing application through to completion, has successfully obtained a bank license: KPMG:
- has a very strong success rate when it comes to helping our clients obtain a bank licence
- has the highest number of bank licensing credentials in the market
- is the adviser for the most recent foreign ADI and RADI licences in Australia.
What type of support does KPMG offer with the ADI and RADI application process?
Depending on your organisation’s needs, we can offer a flexible approach and a range of capabilities.
In practice, many of our clients tend to choose a combination of options, depending on what resources they have at hand, and where they are in the process. Two common options include:
- You do, we review – where the applying organisation takes the lead in the application process and we provide advice and support, including a review of completed documents before they are submitted.
- We do, you review – where we produce the first draft of the documentation for client review. Here, a KPMG specialist will work closely with our client to develop the application while coordinating input from their team and other KPMG subject matter experts.
What steps are taken in an ADI application?
KPMG’s Bank Licensing team can help local and international organisations set up operations in Australia and obtain an ADI licence. Support includes:
- providing market research and competitor analysis reports to help clients make informed decisions
- defining an approach for the organisation
- preparing a tailored business plan that supports a client’s vision and go-to-market strategy
- preparing draft core risk policies to ensure APRA’s regulatory requirements are met
- operational readiness support to successfully pass the APRA onsite review.
What steps are taken in a RADI application?
KPMG can support clients through the RADI application process by:
- facilitating and providing feedback on the first draft of documentation, all the way through to its finalisation
- developing and enhancing policies to align with regulatory standards
- helping clients leverage their existing documents as required
- facilitating a transition from RADI to full ADI
- working alongside clients to develop a fit-for-purpose entity, including setting up risk management functions
- providing project management assistance if required.
What is a Foreign ADI?
An overseas bank that wishes to conduct banking business and provide services to wholesale clients in Australia may do so as a foreign ADI, by establishing 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. Learn more about Licensing pathways for locally-incorporated ADIs.
A foreign ADI licence is the APRA authorisation for an overseas bank to conduct banking business in Australia, with conditions.
Why would an organisation set up a representative office?
A foreign bank representative office is the office of an overseas bank established in Australia with APRA’s consent. They must meet minimum entry standards and comply with certain operating conditions, set by APRA.
In some cases banks from other countries can use the representative office as a local base for their international customers (but not as an authorised deposit-taking institution).
This office can also be useful for brands wishing to perform market research or brand awareness, before creating a legal entity to be able to conduct banking business in Australia.
Why should I get an adviser when applying for a licence?
Having a specialised adviser has become a crucial step for a successful ADI licence application in Australia.
APRA has released key prudential standards such as CPS 220 Risk Management, CPS 230 Operational Risk Management, CPS 234 Information Security and others. At the same time, they refreshed their licensing approach (which was substantially revised in August 2021).
Given regulatory requirements and the high bar APRA sets for foreign applicants looking to enter the banking sector in Australia, we would highly recommend selecting a specialised adviser ahead of your licensing journey.
An adviser with deep experience in the market and application processes can help your organisation be clear about its strategy and long-term business aspirations, as well as providing a thorough understanding of the regulatory challenges before starting the ADI/RADI application process. Being well-prepared in these areas will be key to ensuring a smooth transition into becoming operational.
When do I need to hire a general manager for my foreign ADI or a chief representative for my representative office?
Both figures are key to their approval processes.
For a foreign ADI application, the general manager should be appointed as soon as possible to ensure your application proceeds smoothly and so APRA has a single point of contact for your Australian entity. However, this appointment is not a requirement of the application.
For a representative office application, the chief representative appointment is required as part of the application submission and while it can be appointed at a later stage, the best practice is to select the chief representative officer as soon as practicable once the application process commences.
When do I need to hire a chief risk officer for my foreign ADI?
The chief risk officer (CRO) is a key figure for a foreign ADI. Ideally, they should be hired as early as possible. However, in most cases we see foreign branches hiring a CRO after APRA issues the application invoice to an entity to formally commence the licensing process.
When should I pay the APRA licensing application fee?
Once APRA is satisfied with your application documentation, they will send you the invoice to pay the application fee.
Why do I need to apply for an Australian Registered Body Number (ARBN) and Australian Tax File Number (TFN) as part of my ADI or RADI application?
Every foreign entity in Australia is required to register as a foreign company with ASIC and obtain a TFN during the licensing application process.
When do I need to obtain other licences such as Australian Financial Services Licence (AFSL) and Australian Credit Licence (ASL), in addition to ADI or RADI?
You can apply for these licences after your entity has paid the application fee to commence the licensing approval process with APRA.
Why has APRA revised its approach to new entrants?
APRA has evolved its approach to new entrants as it has gained a greater understanding of the financial and operational challenges applicants face in gaining a foothold into the sector. The revised approach places more focus on areas such as the long-term business sustainability of the business, capital requirements and exit planning.
The rationale behind the changes to the licensing framework are aimed at enhancing financial safety as well as increasing the number of successful applications. However, the new approach does have more stringent requirements which has made the overall application process more complex and requires significant time and resourcing investment from applicants.
What is the 20 percent threshold for FSSA?
The Financial Sector (Shareholdings) Act 1998 (FSSA) is a key piece of legislation protecting the Australian financial sector from monopolisation or unfair competition.
The threshold for foreign and domestic acquirers under the FSSA is 20 percent. The ability to exceed this threshold is solely at the discretion of the treasurer, who has the power to allow for greater ownership stakes or to instruct individuals of the necessity to diminish their stake.
For foreign clients, the treasurer will be advised by the Foreign Investment Review Board (FIRB). The role of the Board is to examine proposed investments in Australia that are subject to the Foreign Acquisitions and Takeovers Act 1975 and supporting legislation and covered by the policy.
