APRA closes the door on new banks

by Madison Utley20 Apr 2020

The Australian Prudential Regulation Authority (APRA) has suspended the issuance of any new banking licences for “at least six months” in response to the economic uncertainty created by COVID-19.

The regulator sent a letter to applicants currently waiting to receive licences explaining the “fundamental change” being felt both in Australia and abroad around the spreading virus.

In the correspondence, APRA highlighted that financial institutions, especially those that take customer deposits, occupy a “unique position of trust”.

“The financial safety of these institutions is key to the financial stability and well-being of the community and, as a result, these institutions are subject to higher standards than many sectors of the economy,” it read.

“This includes higher entry standards. The process of granting an APRA licence is intended to help ensure that a new entrant will be able to honour the financial promises it makes under all reasonable circumstances.”

APRA has not only put a pause on handing out new licences for the sake of consumers; past experience has shown it is challenging for new market entrants to succeed under normal economic conditions, let alone under the current environment.  

In fact, some analysts are confident COVID-19 will lead to the consolidation of the financial services market, reversing the recent increase in licenced ADIs and seeing up to a quarter of industry participants exit the market within the next five years.

The only exception to APRA’s temporary suspension of new licences will be in the “rare case” that the granting of a licence is necessary for APRA to carry out its mandate.

Applicants have been told APRA will keep its approach under review and be in touch when the granting of licences is set to resume.

The hold is expected to last at least six months, but APRA will continue to assess current licence applications throughout the pause to minimise the delay on launching when normal activity recommences. 

Applicants have been invited to reach out to discuss the contents of the letter if they have any pressing concerns.