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The Government has recently released draft legislation aimed at supporting investment and new entrants into the financial services market. The Draft Bill proposes two key amendments to the Financial Sector (Shareholdings) Act 1998 (the FSSA):
The increase of the shareholding threshold to 20% brings the FSSA in line with the Foreign Acquisitions and Takeovers Act 1975 (FATA). There was limited policy rationale for the discrepancy between the FSSA and the FATA, and consistency will simplify investment (and approvals) in Australia’s financial system.
At the same time, the Australian Prudential Regulation Authority (APRA) has recently introduced a dual-phase licensing regime for authorised deposit-taking institutions (ADIs): a direct route and a restricted route. The direct route allows applicants to conduct their intended banking business from the granting of the licence if the applicant can demonstrate that it meets the prudential framework and is ready to commence banking business. The restricted route provides eligible applicants with a restricted licence for a maximum of 2 years before they must meet the prudential framework in full, so as to enable them to conduct limited banking business while developing their capabilities and resources.
The proposed changes to the FSSA, combined with APRA’s announced dual-phase licensing regime, are intended to reduce perceived barriers to entry in the sector so as to encourage greater start up activity and support innovation, while maintaining appropriate safeguards to protect consumers and financial system stability. The proposed changes, if passed, will likely encourage greater participation and competition in the financial system.
The consultation period for the Draft Bill is now complete. The Government is yet to announce a date for a decision on the Draft Bill.
Under the Draft Bill, the Treasurer can approve ownership of more than 20% in a new or recently established financial sector company where the company has assets below a threshold amount and the owner is a “fit and proper” person.
The new approval path is available where the following criteria are met:
Approvals granted under this provision will be subject to the following conditions (in addition to any other conditions applied by the Treasurer):
Approval remains in force until the end of 2 years after the day that the value of the total resident assets of the relevant licensed company first exceeds the asset threshold.