ADI authorization

An applicant for authorization from APRA must complete a formal process involving the completion of required application forms and the submission of supporting information to APRA. Locally incorporated ADIs and foreign ADIs will be required to submit different types of supporting information. APRA will only authorize applicants with the requisite capacity and commitment to conduct, on a continuing basis, banking business with integrity, prudence and competence.

The following are the minimum requirements that an applicant will need to meet for ADI authorization:

• Capital - Although no set amount of capital is required for an ADI, applicants seeking to operate as banks must have a minimum of AUD 50 million in Tier 1 capital. Applicants must satisfy APRA that they are able to comply with APRAs capital adequacy requirements from the commencement of their banking operations, and these requirements will depend on the applicant's own circumstances.
• Ownership - Applicants must satisfy the requirements specified in the Financial Sector (Shareholdings) Act 1998 (Cth) regarding the ownership of ADIs. All substantial shareholders of an applicant are required to demonstrate to APRA that they are 'fit and proper' in the sense of being well-established and financially sound entities of standing and substance.
• Governance - Applicants must satisfy various prudential standards and requirements with respect to the composition and functioning of the board.
• Risk management and internal controls systems - Applicants must satisfy APRA that their proposed (or existing) risk management and internal control systems are adequate and appropriate for monitoring and limiting risk exposures in relation to domestic and, where relevant, offshore operations from the commencement of the ADIs banking operations. Foreign bank applicants must also demonstrate that its arrangements for reporting to the parent foreign bank or head office are adequate.
• Compliance - Applicants must satisfy APRA that their compliance processes and systems are adequate and appropriate for ensuring compliance with APRAs prudential standards and other Australian regulatory and legal requirements.
• Information and accounting systems - Applicants must satisfy APRA that their information and accounting systems are adequate for maintaining up-to-date records of all transactions and commitments undertaken by an ADI, so as to keep management continuously and accurately informed of the ADIs condition and the risks to which it is exposed.
• External and internal audit arrangements - Applicants must demonstrate to APRA that adequate arrangements have been established with external and internal auditors in accordance with the requirements set out in the relevant prudential standards.
• Supervision by home supervisor - Foreign applicants must have received consent from their home supervisor for the establishment of a banking operation in Australia. Only applicants that are authorized banks in their home country will be granted authority to operate foreign ADIs. Foreign bank applicants must satisfy APRA that they are subject to adequate prudential supervision in their home country.

RADI authorization

An applicant for an ADI authorization can first apply with APRA for a restricted authorized deposit taking (RADI) license if they meet the requisite criteria. This is an alternative to the direct route to an ADI authorization described above. A RADI license allows its holder to conduct limited banking business with adjusted prudential requirements while simultaneously building their capabilities, infrastructure and resources. A RADI license can only be held for a maximum of two years. A new distinction has been made creating a New ADI category.

AFSL

An applicant for an AFSL must satisfy the conditions and requirements set out in the Corporations Act, as well as ASIC regulatory guidance materials. The key requirements for an AFSL are as follows:

• Fit and proper - If the applicant is a natural person, ASIC must be satisfied that there is no reason to believe that the applicant is not of good character. If the applicant is not a single natural person, ASIC must be satisfied that there is no reason to believe that any of the applicant's responsible managers, officers, partners,trustees, controllers (if the controller is a body corporate any officer of the controller, and if the controller is a partnership any partner or senior managers of the controller) are not of good character.
• Competency - The applicant must demonstrate its organizational competence for the financial services and products that the business is proposing to provide. Responsible managers must also have the necessary knowledge and skills to carry out their roles.
• Compliance and conflicts management arrangements - The applicant must demonstrate that adequate compliance measures are in place to meet relevant obligations.
• Adequacy of resources - The applicant must demonstrate that they have sufficient financial, human and technological resources to carry out the business that is being proposed.
• Adequate risk management systems - The applicant must demonstrate adequate risk management systems, tailored to the applicant's financial services business. This includes in respect of cyber resilience, as ASIC's recent enforcement action makes clear.
• Dispute resolution - If it has applied to provide financial services to retail clients, the applicant must demonstrate that it has an adequate dispute resolution system in place.
• Compensation and insurance arrangements - If it has applied to provide financial services to retail clients, the applicant will need to have arrangements in place for compensating those clients for losses they suffer if the applicant breaches its obligations under the Corporations Act.
• Research and benefits - If the applicant is seeking to provide financial services to retail clients, the applicant will need to demonstrate how it conducts product research and present its approved or recommended product list.
• Other requirements - The applicant must demonstrate its ability to meet other obligations as an AFS Licensee if ASIC grants the license.