Legal Obligations if Your FinTech Business is Considered a Bank

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Table of Contents

• What is a Bank?
• Your Legal Obligations
• Understanding APRA’s Role
• Restricted ADI Pathway
• Key Takeaways

FinTech businesses must carefully consider their products and services to assess whether they attract any legal obligations. For example, if you are taking deposits from people and providing other banking-like services, your business will be seen as a bank, even if that was not your intention. This article discusses when your FinTech business is considered a bank in Australia and the legal obligations being a bank attracts. 

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What is a Bank?

Any business providing banking services like taking deposits, enabling term deposits, and facilitating savings and transaction accounts is considered a bank in Australia. A business must have an authorised deposit-taking institution (ADI) licence to operate as a bank. 

Australian law holds banks to a higher standard than other financial institutions because of the higher proportion of retail customers who access banking services and the significant role banks play in maintaining the financial health of an economy.  

Your Legal Obligations

If your FinTech business is considered a bank, you must comply with various strict legal obligations. For instance, you must:

1. obtain an ADI licence;
2. meet the capital requirements; and 
3. comply with APRA’s ongoing supervision. 

We discuss each of those legal obligations in detail below. 

ADI Licence Requirement

Any business wanting to engage in banking services must first obtain an ADI licence from APRA. APRA requires businesses to meet specific eligibility criteria before applying for an ADI licence. These include the business must:

• hold or have access to significant capital resources;
• already be engaging in an income-generating financial service (like lending); 
• have suitable and trained individuals in leadership and management positions; and 
• have a good history of running banking like a business.

Capital Requirement

Any business wanting to engage in a banking business must meet the capital requirements imposed under Australian law. The capital requirements apply to both the quality and the quantity of the capital accessible to the business. An initial capital requirement exists, which a business must meet before APRA grants it an ADI licence. After that, the initial capital requirement is replaced with an ongoing Prudential Capital Requirement. 

Complying With APRA’s Ongoing Requirements

APRA supervises banks on an ongoing basis. They may require a bank to complete specific actions or meet certain standards to ensure it is not under any financial risk and can fulfil its financial promises. 

Understanding APRA’s Role

APRA is the Australian regulator that oversees all banks and assesses the applications for an ADI licence. APRA completes a thorough and strict assessment of applicants before issuing an ADI licence. After being granted an ADI licence, APRA supervises banks on an ongoing basis to ensure they can meet their financial promises and are not otherwise at any significant risk. 

APRA more closely supervises new banks, and the supervision tends to lessen as banks become more established. APRA assesses each bank to determine how much supervision is necessary. 

APRA’s close supervision can include:

• heightened monitoring and engagement with the bank;
• closer assessment of the bank’s products, business strategy and progress;
• more specific reporting requirements; and
• in some circumstances, the obligation to commission and make available to APRA an independent review of the bank’s operations and financial standing at the bank’s expense. 

Restricted ADI Pathway

Given the significant capital and resources a business needs to obtain an ADI licence and run a banking business, the Australian government has introduced a restricted ADI pathway. The restricted ADI pathway presents a low entry barrier for businesses to provide limited banking services for two years while building up their resources, testing their operations, and obtaining business experience. 

After two years, the business must either transition into a full ADI licence or exit the banking business. APRA only permits the restricted pathway to continue after two years in limited circumstances. If your business wants to provide banking services and does not have substantial capital and resources, you may consider the restricted ADI pathway.

Key Takeaways

If your FinTech business provides banking services like taking deposits, enabling term deposits and facilitating savings and transaction accounts, you are considered a bank in Australia. All banks must have an ADI licence before providing banking services and must meet ongoing strict capital and legal requirements to continue operating as a bank. 

For general banking advice, our experienced banking and finance lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.