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The Australian Prudential Regulation Authority (APRA) has confirmed that it intends to simplify the bank licensing process, including by scrapping the Restricted Authorised Deposit-Taking Institution (RADI) licensing framework, as part of a new licensing framework for locally incorporated ADIs (a separate licensing revision for foreign ADIs is expected in near future).
While the prudential regulator brought in the RADI regime in 2018 to provide a phased and easier entry into the banking sector, only seven RADI licences were issued, with five of those transitioning to full banking licences. There are currently no RADIs in operation in Australia.
The most recent neobanks that have successfully moved from RADI to a full banking licence were Avenue Bank (which became a full bank in 2024), which specialises in bank guarantees, and Alex Bank (which became a full bank in 2022).
However, several RADIs have since exited the industry, with some having never started operations. Earlier this month, one of the banks that had gone through the RADI regime – in1bank – handed back its banking licence and closed its doors.
Given the issues, APRA last year opened a consultation on changing the bank licensing framework, with feedback now having been used to form the draft new rules, currently open for consultation.
The consultation paper on Licensing for authorised deposit-taking institutions, released on Wednesday (13 May), confirms that the RADI pathway will be discontinued, with all applicants subject to the same licensing criteria moving forward.
According to APRA, feedback from stakeholders had been broadly supportive of removing the RADI pathway, who “agreed that the pathway has experienced challenges in supporting entry of sustainable new banking businesses”.
In particular, RADI entrants found it difficult to maintain capital adequacy requirements over the two-year RADI period and suggested a shorter licensing time frame.
APRA noted that “while the RADI pathway initially helped encourage new bank entrants, in recent years, the pathway has not been as simple and effective as intended. This is reflected in its limited take-up”.
“Many RADI applicants encountered difficulties transitioning to an ADI licence and feedback has been that a simpler and clearer pathway to gaining an ADI licence is preferred,” it said.
As such, all companies, including smaller start-ups, applying for a new banking licence will be subject to the same licensing criteria.
While all applicants will face the same minimum licensing criteria, the licensing assessment will consider the size, scale, complexity, and risk of an applicant’s proposed business, the regulator has outlined.
For example, applicants with more established or complex business models, such as existing non-bank financial institutions with sizeable loan portfolios, may be required to demonstrate a higher level of maturity in areas such as governance, risk management, and operational capability compared to smaller start-up companies.
This aligns with APRA’s risk-based approach to prudential regulation, the regulator said.
Following authorisation, new entrants will most likely be subject to APRA’s prudential framework for non-significant financial institutions (which supports competition by reducing regulatory burden for smaller ADIs).
“While the RADI pathway will be discontinued, the revised framework will continue supporting smaller start-up companies. Clearer and more transparent criteria will improve all applicants’ understanding of APRA’s expectations, while more streamlined and predictable licensing time frames will address challenges with sustaining operations throughout the licensing process,” it said.
As well as mothballing the RADI licensing regime, APRA is also proposing that it replace the existing guidelines with “legally effective licensing criteria”.
The ADI Licensing Criteria will provide a more transparent set of requirements that applicants must demonstrate they meet before being authorised. Explicit and measurable requirements will clarify expectations and support more efficient engagement with APRA during the licensing process.
For example, the ADI Licensing Criteria would require an applicant to:
- Be structured and operate in a manner that APRA can effectively supervise.
- Have sufficient financial and non-financial resources to prudently conduct banking business.
- Have suitable skills and experience to prudently conduct banking business.
- Maintain a risk management framework to prudently conduct banking business.
- Have credible plans for effectively responding to a stress that threatens its viability.
Applicants must demonstrate that they meet the ADI Licensing Criteria within 12 months of submitting a licensing application, during which time applicants are expected to fund themselves throughout the licensing process (as APRA cannot ‘fast-track’ applications where applicants have insufficient funds).
The regulator expects to have made a licensing decision after three months.
The regulator said: “Applicants will be better positioned to plan, allocate resources and develop the necessary capabilities ahead of submitting a formal application.
“To support applicants in demonstrating how they meet the criteria, APRA will also publish ADI Licensing Guidelines. These guidelines will not contain legally enforceable requirements but will instead provide information on APRA’s expectations to support applicants in demonstrating that they meet the licensing criteria.”
APRA has said it also intends to publish all licensing decisions, including refusals, to improve the transparency of APRA’s decision making.
The regulator is now calling for submissions to its draft licensing framework until 31 July 2026.
After considering feedback, APRA aims to publish the final licensing criteria and guidelines in “late 2026”, after which time the new licensing framework will replace APRA’s existing ADI licensing guidelines.
[Related: Neo-lender’s banking licence officially revoked]
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