Alex Bank Pty Ltd (Alex Bank) has been granted a restricted Banking Authority from the Australian Prudential Regulation Authority (APRA). Under this authority Alex Bank has restrictions on the amount of deposits it can take and has simpler prudential requirements while it builds its resources and capability.
Alex Bank has until 7 July 2023 to meet APRA’s full prudential requirements or it must exit the banking industry.
Arrangements have been put in place to protect customers in the event Alex Bank exits the banking industry. This includes:
Under the terms of Alex Bank’s restricted Banking Authority, unless otherwise approved in writing by APRA, Alex Bank must:
Under the restricted Banking Authority, there are simpler prudential requirements while resources and capabilities are being developed. A summary of the requirements follows. A reference to ‘Alex’ is reference to Alex Bank Pty Ltd and the group of which Alex Bank Pty Ltd is a member.
Alex is required to hold a minimum Prudential Capital Requirement of $3 million plus resolution reserve of $1 million, or 20 per cent of adjusted assets, whichever is higher. Alex is required to have:
Measurement of Capital
Alex is required to hold its entire capital requirement as Common Equity Tier 1 Capital (CET1). Alex will be required to make all necessary regulatory adjustments to its capital from its CET1.
Alex must hold at all times Minimum Liquidity Holdings (MLH) equal to the greater of:
MLH assets must be free from encumbrances and include high quality assets such as government securities, bank bills and bank deposits.
Alex must have:
Alex must have an adequate credit risk management system which includes policies, procedures and systems for:
A large exposure is an exposure to a counterparty or group of related counterparties greater than or equal to 10% of Common Equity Tier 1 Capital.
Exposures to a counterparty or group of related counterparties are subject to the following limits:
APRA must be notified within 1 business day of committing to any exposures to non-government, non-ADI counterparties in excess of 10% of Common Equity Tier 1 Capital.
Associations with Related Entities
All entities controlled by Alex Corporation Limited or Alex Pty Ltd are related entities. The following limits apply to exposures to these related entities:
Audit and Related Matters
Alex is expected to meet and continue to meet on an ongoing basis the full requirements of APS 310 Audit and Related Matters. External auditors will be expected to provide assurance against Alex’s compliance with the applicable Restricted ADI reporting and prudential requirements.
Alex will need to meet specific disclosures that apply to Restricted ADIs.
Alex must be able to demonstrate to APRA that any outsourcing arrangements for material business activities that impact on its strategic plans during the restricted phase are subject to appropriate due diligence, approval, contractual arrangements, monitoring and contingency planning. All material outsourced arrangements must allow APRA access to the documentation and information related to the outsourcing arrangement, including the right to conduct on-site visits to the service provider.
Alex must notify APRA as soon as possible after entering into an outsourcing agreement for a material business activity, and in any event no later than 20 business days after execution of the outsourcing agreement.
Alex must consult with APRA prior to entering into any offshoring agreement involving a material business activity.
Alex must maintain sufficient and appropriate resources to manage and monitor each outsourcing relationship at all times. The type and extent of resources required will depend on the materiality of the outsourced business activity. At a minimum, monitoring must include:
Alex must advise APRA of any significant problems that have the potential to materially affect the outsourcing arrangement and, as a consequence, materially affect the business operations, profitability or reputation of the ADI.
Where an outsourcing agreement is terminated, Alex must notify APRA as soon as practicable and provide a statement about the transition arrangements and future strategies for carrying out the outsourced material business activity.
Business Continuity Management
APRA expects Alex to meet customer obligations in the event of a disruption. As a minimum, Alex must demonstrate it has considered its exposure to, and has developed response plans for, plausible disruption scenarios to its business operations which are commensurate with the nature, size and complexity of its operations. This may be incorporated in scenario analysis or exit plans.
Alex must notify APRA no later than 24 hours after it experiences a major disruption that has the potential to have a material impact on its risk profile, or affect its financial soundness and explain action being undertaken, the likely effect and the timeframe for returning to normal operations.
APRA Prudential Standard CPS 510 Governance sets out minimum foundations for good governance of APRA-regulated institutions.
Key requirements of APRA’s Prudential Standard CPS 510 Governance as modified for the purpose of Alex’s restricted Banking Authority are:
Strategy to ADI Licence
Alex must maintain a plan that sets out how it will meet the full prudential requirements within the required timeframe set by APRA (strategy to ADI licence).
Alex must maintain a plan that sets out its approach for returning funds for depositors and surrendering its Banking Authority in the event it must exit the banking industry.
Alex must have in place management information systems and monitoring mechanisms to assist with early detection and correction of deficiencies in procedures for managing operational risk.
Fit and Proper
Persons who are responsible for the management and oversight of Alex, and persons employed by a member of the group whose activities may materially affect the business or financial standing of the group, need to have appropriate skills, experience and knowledge, and act with honesty and integrity. Alex must prudently manage the risk that persons in positions of responsibility might not be fit and proper through actions including:
These requirements also apply to appointed auditors.
Financial Claims Scheme
Prior to commencing deposit taking activities, Alex Bank Pty Ltd will be required to ensure it is adequately prepared should it become a declared ADI for Financial Claims Scheme purposes.
The key requirements of the Prudential Standard APS 910 Financial Claims Scheme are that Alex must:
Alex Bank Pty Ltd must include a disclosure on all promotional and marketing material, whether in paper form, electronic form or website or social media based content. Unless otherwise approved by APRA, the disclosure must:
The further information referred to above must include at a minimum:
Prior to entering into a customer relationship, Alex Bank Pty Ltd must provide the customer with a written disclosure statement (the statement).
The statement must be prominently displayed and written in plain language and must disclose at a minimum, the following matters:
APRA must be immediately informed, in accordance with section 62A of the Banking Act, of:
Alex Bank Pty Ltd ABN 13 627 244 848 ("Alex"), Australian Financial Services Licence and Australian Credit Licence 510805, is authorised by the Australian Prudential Regulation Authority ("APRA") to operate under a time-limited and restricted Banking Authority. Further information regarding Alex's restricted Banking Authority is available here.
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