In its submission to the Financial System Inquiry, Coles has outlined some of the stumbling blocks faced by Wesfarmers in its journey toward a banking licence. The submission provides the first real, if still indirect, confirmation by Coles and Wesfarmers of their intention to diversify into banking.The risk that the Australian Prudential Regulation Authority will seek to oversight the whole of the Wesfarmers conglomerate is a particular sore point."The regulatory approach in other jurisdictions has been to treat the bank on a stand-alone basis," Rob Scott, finance director of Coles wrote. "There is no international precedent that sees a prudential regulator extend its supervisory reach by applying banking prudential requirements to the non-banking entities of a retail group that holds a banking licence.""While regulators offshore quite rightly hold concerns about potential contagion risks that may occur between a retailer and its banking subsidiary, these concerns have generally been managed through requirements imposed on the bank itself - not on the parent retailer or other non-regulated parts of the group."Coles also endorsed the approach in Canada and France, where bank regulators "appropriately applied a measured approach to prudential supervision for banks with limited offerings, by reducing the intensity of prudential supervision for banks that offer only one or two types of products.""This approach has helped these banks compete more efficiently with traditional players, while ensuring that key regulatory concerns around contagion, resolvability and outsourcing remain addressed."We see no barriers to Australia implementing a similar approach given APRA's 'risk-based' prudential regime."