Australia's Council of Financial Regulators, in consultation with the Australian Competition and Consumer Commission, has reported to the Treasurer on competition among small and medium-sized banks, defined as authorised deposit-taking institutions outside the four major banks. The report sets out nine recommendations for the Government and nine regulator actions intended to make regulation more proportionate, improve pathways for entry and orderly exit, and address funding constraints while avoiding measures that would transfer risk to taxpayers. Key proposals include the Australian Prudential Regulation Authority formalising a three-tier approach to bank proportionality in prudential standards, reviewing the internal ratings-based accreditation process, and improving how it communicates the basis for minimum capital adjustments and what would be required to remove or reduce them. The report recommends narrowing some Australian Securities and Investments Commission reporting obligations for small banks, including removing automatic reporting of certain breaches unless assessed as significant and replacing the annual compliance certificate with a simplified responsible manager form, while ASIC will move small banks’ internal dispute resolution reporting from six-monthly to annual. On market structure, APRA plans to streamline licensing and introduce explicit assessment timeframes, while the Government is asked to extend streamlined Financial Sector (Shareholdings) Act 1998 approvals for start-ups from two to five years and lift the resident asset limit from AUD 200 million to AUD 500 million, and to streamline ownership and related approvals for banks under AUD 10 billion in assets and raise relevant APRA delegations to at least AUD 10 billion. The report also recommends modernising the Financial Claims Scheme to support a more continuous depositor experience and more flexible intervention tools, and closing gaps in unclaimed deposits and moneys by enabling ASIC to receive and deal with unclaimed deposits associated with bank exits, including unclaimed Financial Claims Scheme payments. The Government is asked to consider raising the covered bond cap from 8 to 12 percent of Australian assets, with APRA to consider related liquidity treatment and whether asset encumbrance limits are needed as part of a future liquidity policy review. The report recommends against introducing a government-backed residential mortgage-backed securities programme or ongoing government support for multi-seller securitisation. It also sets out an option for the Government to consider whether it wants APRA to take a lighter-touch approach for very small banks, conditional on additional safeguards including changes to Financial Claims Scheme triggers and strengthened liquidity support arrangements.
Council of Financial Regulators 2025-08-06
Australia's Council of Financial Regulators recommends nine government reforms to strengthen competition among non-major banks
Australia's Council of Financial Regulators, consulting with the ACCC, reported to the Treasurer on competition among small and medium-sized banks, proposing nine government and nine regulator actions. Key proposals include APRA formalising a three-tier bank proportionality approach, streamlining licensing, modernising the Financial Claims Scheme, and adjusting ASIC reporting obligations for small banks. Recommendations include raising the covered bond cap and extending streamlined approvals for start-ups, but advise against government-backed residential mortgage-backed securities programmes.