Financial services regulator APRA has extended the validity of Avenue Bank’s restricted operating licence, granting the neobank a six-month deferral on meeting the requirements of a full authorised deposit-taking institution (ADI).
Avenue’s restricted ADI (rADI) now expires on 7 March 2024, at which point the bank must meet the requirements to qualify as a full ADI or hand back its licence.
This restricted licence was set to expire on 7 September 2023, exactly two years after it was originally granted – the maximum period a rADI is typically granted by APRA.
Failure to meet these requirements would require Avenue to hand back its banking licence and exit the banking industry.
APRA notes that it only grants extensions to a rADI in exceptional circumstances.
In granting the deferral, APRA said that it “[recognised] the unique circumstances of Avenue Bank’s application” judging that a “short extension was warranted”.
It added: “APRA does not view this decision as setting a precedent for other restricted ADIs.”
Under the current terms of the rADI, the bank is not required to meet the full ADI prudential framework. However, it is required meet several strict conditions, including holding a minimum capital requirement (of $3 million or 20 per cent of adjusted assets) and minimum liquidity holdings, and have both a strategy for meeting a full ADI qualification and an exit plan should it surrender its restricted licence.
The neobank, which specialises in SME lending, does not currently offer its products to the general public.
Avenue notes that it does, however, conduct “limited banking business with a select few customers and business partners”.
At the time of the original granting of its rADI in late 2021, then-chief executive George Confos said the bank was “laser-focused on cutting-edge credit decisioning capabilities to get good businesses the funding they deserve, and quickly, without putting up their home as security.”
“We’re bringing to market a 21st century business bank for 21st century SMEs. We’re looking at the ways we can innovate products for this underserviced market.”
Despite the rarely granted extension from the regulator, Avenue is not the first to have its rADI deadline deferred.
In June 2022, APRA announced that it had given IN1Bank an initial extension of 12 months. At the time, APRA cited pandemic disruption as the reason for granting its first extension.
Last September, APRA handed IN1Bank a second extension to its operating licence, recognising, like in Avenue’s case, the unique circumstances of its application and judging “that a further short extension was warranted”.
The regulator finally granted IN1bank an unrestricted ADI licence in May this year.
APRA’s Response Paper notes that the regulator may have the discretion to consider extending the time limit for a restricted banking licence in isolated circumstances, though only where APRA assesses that the Restricted ADI can transition to an ADI licence in a short timeframe after the two-year limit.