Executive Summary
APRA’s proposed reforms to the Authorised Deposit-taking Institution (ADI) licensing framework represent a significant modernisation of the process for establishing a banking business in Australia.
The reforms are intended to make the licensing process more transparent, predictable and efficient, while maintaining APRA’s prudential standards and focus on depositor protection.
For foreign banking groups considering entry into Australia through a locally incorporated banking subsidiary, the reforms should reduce regulatory uncertainty and improve the ability to plan and execute a licence application.
For local start-ups, fintechs, non-bank lenders and other Australian companies considering a banking licence, the key message is that the pathway should become easier to understand, but not necessarily easier to satisfy.
The most significant change for domestic start-ups is APRA’s proposal to discontinue the Restricted ADI (RADI) pathway. APRA has stated that the RADI pathway was introduced in 2018 to facilitate market entry by small start-up companies, but that it has had limited take-up and has not been as simple and effective as intended.
APRA proposes to replace its existing guidance-based licensing expectations with legally effective ADI Licensing Criteria, requiring applicants to demonstrate those criteria within 12 months, and publish all licensing decisions, including refusals.
Applicants will nevertheless need to demonstrate a high degree of operational, governance and prudential readiness prior to authorisation. Applicants will also need to demonstrate that they are well capitalised and can remain so as their business scales up.
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Overview of the Proposed Reforms
- The centrepiece of APRA’s proposal is the replacement of the existing guidance-based licensing framework with a more explicit and legally effective set of licensing criteria.
- APRA’s view is that the existing process can be lengthy and resource-intensive, with iterative engagement and protracted assessment timeframes.
- APRA identified three key challenges in the current framework: unclear licensing expectations, limited effectiveness of the RADI pathway, and uncertain licensing timeframes.
- APRA’s objective is to provide clearer expectations for applicants, faster and more predictable licensing decisions, and greater transparency regarding regulatory decision-making.
- The proposed framework will apply to applicants seeking to establish locally incorporated ADIs in Australia.
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APRA has indicated that it intends to separately review its approach to licensing foreign ADI branches following completion of this reform process.
APRA has not signalled that it will review its approach to licensing Insurers or Superannuation Funds. Notably, there was no corresponding “Restricted Insurer” or “Restricted Superannuation Fund” licensing pathway in Australia, making the RADI pathway unique to the Banking sector.
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Key Elements of the New Framework
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RADI Pathway: What Is Changing?
The RADI pathway was introduced in 2018 to facilitate market entry by small start-up companies. While the pathway initially helped encourage new bank entrants, in recent years it has had limited take-up and was not as simple and effective as intended.
Many RADI applicants encountered difficulties transitioning to an ADI licence, and feedback to APRA indicated a simpler and clearer pathway to gaining an ADI licence was preferred.
APRA is therefore proposing to discontinue the RADI pathway. This is particularly significant for local start-ups. The previous policy logic of RADI was that a smaller entrant could enter on a restricted basis and then transition to full authorisation. APRA’s proposed framework shifts the focus towards one clearer pathway, with greater upfront preparation and evidence of prudential readiness.
Out of approximately 9 local startup banks licenced since 2018, three remain, being Judo (which did not utilize the RADI pathway), Alex and Avenue (both of which utilized the RADI pathway and then successfully secured full ADI licences).
As of the date of writing, there are no remaining RADI licences in Australia.
Strategic Implications for Foreign Banking Groups
Reduced regulatory uncertainty
One of the most significant advantages of the proposed framework is likely to be greater certainty regarding what APRA expects of prospective entrants. The proposed licensing criteria should provide a more transparent basis for assessing regulatory expectations before a formal application is submitted. This may strengthen management’s ability to prepare realistic business cases, implementation plans and Board submissions when assessing an Australian market entry strategy.
Greater importance of early preparation
While the reforms seek to improve the efficiency of the licensing process, they do not reduce prudential requirements. Applicants should expect APRA to focus closely on the maturity and credibility of their operating model before authorisation.
- governance and Board oversight;
- executive capability;
- capital and liquidity management;
- risk management;
- operational resilience; and
- recovery and contingency planning.
Alignment with established international banking groups
The proposed framework appears particularly well suited to applicants that already operate regulated banking businesses in other jurisdictions and can demonstrate established governance, risk and control frameworks. Such institutions may be better positioned to satisfy APRA’s licensing criteria, including access to Tier 1 capital, and manage the proposed assessment timetable.
Readiness priorities for Banking License Applicants
Before commencing the licensing journey, intending applicants should consider:
- Business model and strategy – clarity on target market, products, customer proposition, growth assumptions and path to sustainable profitability.
- Capital and funding – demonstrating sufficient resources to maintain capital and liquidity and manage financial risk.
- Governance structure – a board and management structure capable of operating a prudentially regulated banking business.
- People model – appropriate skills and experience across banking, risk, compliance, finance, operations, technology and customer-facing functions.
- Risk management framework – documented risk appetite, policies, controls, reporting and escalation pathways which address APRA prudential requirements.
- Operational capability – operational risk management and resilience from day 1 baseline across systems, technology, third-party arrangements, data, compliance, controls and reporting.
- Stress and recovery plans – credible plans to respond to and recover from stress events and protect the interests of depositors.
- Regulatory engagement plan – a disciplined process for engaging with APRA before and during the formal application.
Foreign banking groups seeking to operate in Australia will typically establish a representative office and then progress to a branch before they consider incorporating a local subsidiary.
This provides a longer horizon to evaluate how the group will leverage capability and address critical questions:
- How will the Australian business align with the parent company and wider group?
- What support will the group provide?
- How will parent company ownership coordinate with the Australian entity’s governance?
- What people resources should be deputized to Australia to deliver capability?
- How can risk & compliance frameworks in Australia satisfy both APRA and home country regulator expectations?
Key takeaway
The proposed framework should make the pathway to authorisation clearer and more predictable, but applicants will continue to need to demonstrate strong governance, financial resilience and operational readiness before being licensed to conduct banking business in Australia.
Between the release of the consultation package and the date of writing, APRA has licenced two new banks, being Revolut and Taipei Fubon Bank.
Conclusion
For foreign banking groups considering entry into Australia, the package is likely to be viewed positively. Greater transparency regarding licensing requirements and timelines should support more effective planning and reduce regulatory uncertainty. However, success is likely to depend on demonstrating a mature and well-developed banking proposition from the outset.
For aspiring Australian bank entrants, these reforms create an opportunity to approach licensing with greater certainty and discipline. However, the removal of the RADI pathway means local companies should not assume they can develop core banking capability during the formal licensing process.
Entities seeking a Banking licence in Australia will benefit from engaging advisors with deep experience in the Australian prudential and regulatory regime. The PFS team have recently completed two successful licensing projects1 for foreign financial institutions entering the Australian market and have worked with many of the post 2018 entrants.
Read the APRA consultation package, “A More Efficient and Transparent Bank Licensing Framework”, published 13 May 2026.
Submissions closed on 31 July 2026. We look forward to APRA releasing the final framework.
