The Australian Prudential Regulation Authority expects to see fewer applications for banking licences, as a result of its new approach to the licensing and supervision of new banks.

APRA has finalised its new approach, following the release of a consultation document in March, acknowledging that the changes are a “slight raising” of barriers to entry. The new approach takes effect immediately.

APRA’s consultation followed in the wake of one neobank, Xinja, handing back its licence and another, 86 400, selling out to a big bank after only a short period in operation.

APRA will expect new ADIs to have a more advanced contingency plan to respond to financial stress, including an option to execute an “orderly and solvent” exit from the banking industry.

It has provided greater clarity around capital requirements at different stages for new entrants, aimed at reducing volatility in capital levels and facilitating a transition to the methodology for established ADIs over time.

And it will require entities with restricted ADI licences to achieve a limited lunch of both an income-generating asset product and a deposit product before being granted an ADI licence.

Applicants for unrestricted licences will be expected to have a track record in a banking-related activity, such as lending.

APRA’s view is that there is a need for a greater focus on the longer-term sustainability of applicants.

In a recent review of the ADI licensing regime, it concluded: “Achieving an ADI licence is a milestone, not a destination, given the considerable development that continues in the years following authorisation.”