What it takes to be licensed by APRA

With frequent updates to licensing requirements across industries and regulators, it can be difficult to keep track of what is required of various financial services institutions.

APRA-regulated entities are no exception. APRA licenses banking, insurance and superannuation businesses to operate in Australia, enforcing requirements to ensure these entities are doing the right thing by their customers and other stakeholders.

This blog provides a high-level summary of licensing requirements for APRA-regulated entities (RSE licensees, approved deposit-taking institutions, general insurers, life insurers and private health insurers) and how Hall Advisory can provide support through and beyond the licensing application process.

Superannuation: RSE licensees

To operate a registrable superannuation entity (RSE) in Australia – superannuation funds, small APRA funds, approved deposit funds and pooled superannuation trusts – requires holding an RSE licence. RSE licences come in several classes:

Public offer entity licence – Allows the licensee to operate a public offer RSE (defined in section 18 of the SIS Act), including small APRA-regulated funds.
Non-public offer entity licence – Allows the licensee to be the trustee of RSEs that are not covered by the public offer entity licence, such as corporate superannuation funds. Groups of individual trustees must nominate this licence class and are restricted to operating a non-public offer RSE.
Extended public offer entity licence – Allows the licensee to operate both public offer RSEs and non-public offer RSEs under one licence.
Acting Trustee licence – If APRA suspends or removes all the trustees of an RSE, APRA must appoint a corporation or an individual to act as the trustee (‘acting trustee’) during the period of suspension or until the vacancy in the position of the trustee is filled. Acting trustees must hold an acting trustee RSE licence issued by APRA.

Information required for the RSE licence application includes:

General information such as the licence class, responsible persons and corporation details (i.e. ownership structure, responsible persons, auditor independence), and applicant details (i.e. trustee insurance, a description of any other business the applicant is involved in).
Likely compliance with the prudential standards determined under the Superannuation Industry (Supervision) Act 1993, addressing each superannuation prudential standard with supporting documents.

More detail on the licensing guidelines for superannuation can be found here.

Banking: Approved deposit-taking institutions

To conduct banking business in Australia (defined in the Banking Act 1959) requires an authorised deposit-taking institution (ADI) licence from APRA. Businesses only providing finance and not taking deposits do not require an ADI licence.

APRA’s expectations and approach to ADI licensing differ across the types of ADIs:

Locally-incorporated ADIs (including locally incorporated subsidiaries of overseas banks providing banking services to retail clients).
Overseas banks who wish to conduct banking business for wholesale clients in Australia.
Purchased payment facility (PPF) providers with widely available and accepted payment facilities (subject to several conditions under the Banking Act).

There are two pathways available to becoming an ADI: the direct pathway and the restricted pathway more details can be found here.

Minimum requirements for applicants of ADI licences cover the following assessment areas:

Business plan
Strategy to obtain ADI licence
Group structure
Board and management
Fit and proper requirements
Capital adequacy and management
Liquidity requirements
Risk governance
Material outsourcing arrangements
Information technology
Business continuity plan
Contingency plan
Financial Claims Scheme (FCS) systems and operational readiness
Additional policies and procedures
Other approvals (i.e. AFSL, FSSA)

More detail on the licensing guidelines for locally-incorporated ADIs can be found here.

Insurance: General insurers

To conduct insurance business in Australia (defined in Part 3 of the Insurance Act 1973) requires authorisation from APRA giving you the authority to conduct insurance business. The definition of “insurance business” excludes life insurance and health insurance (both covered by other legislation), as well as the provision of funeral services.

The authorisation criteria for general insurers from APRA includes:

Ownership – interests of an individual shareholder or group of associated shareholders in an insurer is generally limited to 15% of the insurer’s voting shares (under the Financial Sector (Shareholdings) Act 1998). Substantial shareholders are required to demonstrate they are well-established and financially sound entities or individuals of standing and substance.
Governance – must satisfy the requirements set out in Prudential Standard GPS 510 Governance (where applicable) in relation to the Board composition and function. Directors and senior management must also meet APRA’s fit and proper requirements. The applicant must also appoint an auditor and actuary.
Capital and assets in Australia – requirement to have sufficient capital to meet the minimum capital requirements under Prudential Standard GPS 110 Capital Adequacy and hold assets in Australia (excluding goodwill) of a value equal to or greater than the applicant’s total liabilities in Australia.
Risk management framework – a proposed or existing risk management and control framework that is adequate and appropriate to monitor and limit risk exposures in relation to the operations of the insurer.
Compliance – the applicant’s processes and systems must ensure compliance with APRA’s prudential standards, other Australian regulatory and legal requirements, and where applicable, foreign regulatory requirements.
Reinsurance management – must have in place a reinsurance management framework in accordance with Prudential Standard GPS 230 Reinsurance Management, with a strategy, supporting policies and procedures, and clearly defined managerial responsibilities.
Information and accounting systems – information and accounting systems are adequate for maintaining up-to-date records of all business undertaken.

More detail on the licensing guidelines for general insurers can be found here.

Insurance: Life insurers

If a business carries out business that can be classed as life insurance business (as defined in Part 2 of the Life Insurance Act 1995 (‘Life Act’)), a licence from APRA is required. This licence can only be granted to corporations, and not partnerships or unincorporated entities. Friendly societies – financial organisations owned by their members and not shareholders – that are conducting life business also require registration from APRA under the Life Act.

Minimum requirements applicants need to meet for licensing are like that of general insurers, however subject to the Life Insurance Prudential Standards.

More detail on the licensing guidelines for life insurers can be found here.

Insurance: Private health insurers

The Private Health Insurance (Prudential Supervision) Act 2015 requires a business to hold a licence from APRA registering you to conduct any business that can be classed as health insurance business (defined in sub-section 121-1 of the Private Health Insurance Act 2007). Like life insurance, this licence can only be granted to corporations, and not partnerships or unincorporated entities.

Information required for the application to hold a registration as a private health insurer includes:

General information such as contact details, corporation (including ownership), status of corporation, responsible person details, and a description of any business conducted by the applicant other than private health insurance.
Supporting documents including evidence of ownership and structure, risk management related documents (e.g. business plan, proposed Appointed Actuary statement, risk management plan, business continuity), liquidity management plan, capital management policy, outsourcing policy, disclosure to APRA statement and governance related documents (e.g. Board Audit Committee charter, board renewal and performance assessment policy, internal audit arrangements).

More detail on the licensing guidelines for private health insurers can be found here.

APRA’s licensing process

APRA provides an overview of the licensing process on their website, as well as more tailored guidance for each APRA-regulated entity type.

Below are the key steps involved in APRA’s licensing process:

Step 1 – Early contact with APRA

This is an important step that needs to occur before lodging an application to develop an understanding of the process and APRA’s expectations for your business and your application.
Hall Advisory can assist in the pre-application process by articulating your business plan, providing advice on the proposed governance and corporate structure, risk management framework and proposed financial, people and infrastructure resources.

Step 2 – Lodge an application

Lodge a formal application with the required documentation (Board approved where required) for APRA to assess whether to grant your business a licence.
Hall Advisory can assist by assessing skills and experience, upskilling as required, preparing you to demonstrate your understanding of the APRA requirements and responsibilities under the prudential framework. This includes having a suite of prudential frameworks, policies, and procedures in place.

Step 3 – Assessment

Once received, APRA will review and assess your licensing application and request any additional information if needed.
The assessment is likely to take between 3 and 18 months, depending on the complexity and nature of the approval being sought. In some cases, the assessment may be prolonged over several years.
Hall Advisory can assist in the preparation of any additional information during the assessment process, including being available for discussions and on-site Prudential Consultations and reviews.

Step 4 – Post licensing

If your application is approved, you become a licenced entity and will have ongoing requirements to meet APRA’s prudential standards.
Hall Advisory can also assist in ensuring you have adequate documentation in place to demonstrate ongoing compliance, including establishing ongoing testing and monitoring processes.

How Hall Advisory can help

Applying for a licence with APRA can be a time-consuming and onerous process. We’re here to support you through that process. APRA licensing, registrations and approval applications are part of our core services at Hall Advisory. Here’s how we can help:

Preliminary assessment to determine the type of licence required based on the nature of services provided
Identification of the key information required for an application or variation
Drafting or review of the application form and attachments
Drafting or review of policy and procedure documents
Guidance through the licence application process
Liaison with APRA during the application and assessment process

To lodge a timely application and remain compliant, contact us for a confidential, no-obligation consultation.