Neobanks face stricter licensing process.

  • By Elizabeth Fry

The prudential regulator has slapped new lenders with tougher new rules as a result of its new approach to the licensing and supervision of neo banks after the collapse of Xinja and the sale of 86 400 to National Australia Bank. 

APRA has released its updated approach to licensing and supervising new authorised deposit-taking institutions. 

The approach demands “stronger requirements for being granted a banking licence and closer supervision of new entrants as they seek to establish themselves”. 

A consultation paper was released on 18 March 2021 following 86 400's decision to sell to NAB in January and after Xinja handed back its banking licence. 

The prudential regulator said the changes were designed to encourage more sustainable competition in the banking sector by ensuring new entrants are better equipped to succeed. 

Under the new approach, restricted ADIs must have an income-generating asset product and a deposit product before being granted a full banking licence. 

APRA also said new entrants should have a more advanced contingency plan to respond to financial stress, including an option to execute an “orderly and solvent” exit from the banking industry. 

In addition, the regulator has provided more clarity on capital requirements at different stages for new entrants, aimed at reducing volatility in capital levels and facilitating a transition to the methodology for established lenders over time. 

The new rules take effect immediately.