Are You Exempt? ACL Financial & Risk Obligations for APRA-Regulated Entities

Introduction

Under the National Consumer Credit Protection Act 2009 (Cth), a key obligation for any Australian Credit Licence (ACL) holder is to maintain adequate financial resources and have adequate risk management systems. This requirement is fundamental to ensuring a licensee can engage in credit activities and provide its financial service in compliance with the law. However, for a body regulated by the Australian Prudential Regulation Authority (APRA), this specific obligation is modified to avoid regulatory duplication, as these entities are already subject to APRA’s own prudential framework.

This arrangement between the Australian Securities and Investments Commission (ASIC) and APRA means that certain licence holders are exempt from the standard ACL financial requirements. This guide provides essential clarity for any ACL holder under APRA supervision, explaining who qualifies for this exemption, the scope of the exemption, and the practical implications for those who engage in credit activities under this dual regulatory structure.

APRA’s Role in Regulating Bodies Under Its Supervision

APRA’s Prudential Framework & Licensing Process

The APRA operates under a prudential regulation framework designed to ensure the financial soundness of the institutions it oversees. This framework consists of relevant legislation, prudential standards, and prudential practice guides (PPGs).

While prudential standards set out the minimum requirements that a regulated entity must meet, PPGs provide guidance on what APRA considers to be sound practice in meeting those requirements.

APRA offers two main pathways for entities seeking to become an Authorised Deposit-Taking Institution (ADI):

Pathway	Description & Suitability
The direct pathway	Suitable for applicants that already possess substantial capital, governance structures, and operational capabilities necessary to meet the full prudential framework from the outset. These applicants are typically well-resourced and may have an existing banking-related business.
The restricted pathway	Designed for new entrants that need time to develop their capabilities and raise capital. This pathway allows an entity to operate as a Restricted ADI for a limited period, during which it can conduct limited banking business while working towards meeting the full prudential framework.

The licensing process is consultative, beginning with pre-application discussions where APRA:

• Clarifies its expectations
• Assesses the applicant’s proposal
• Provides feedback through challenge meetings to ensure readiness for formal application

To grant an ADI licence, APRA must be satisfied that the applicant:

• Is financially sound
• Can manage risks effectively
• Has fit and proper individuals in key roles
• Will be able to meet all relevant prudential requirements on an ongoing basis

Ongoing Supervision & Enforcement by APRA

Once an entity receives its ACL, it becomes subject to APRA’s ongoing supervision. APRA’s supervisory approach is risk-based, forward-looking, and outcomes-focused. This means that supervision intensity is proportionate to the level of risk an entity poses to the financial system; institutions with greater potential impact face more rigorous oversight.

This supervision is carried out through both off-site analysis of data and on-site reviews and assessments.

APRA’s regulatory toolkit includes a range of enforcement powers to ensure compliance and address prudential risks. These powers are applied to hold entities and individuals accountable for their conduct.

APRA’s enforcement actions can include:

• Conducting formal investigations into potential breaches
• Issuing directions that require an entity to take or seize specific actions
• Imposing conditions on an entity’s licence to operate
• Banning individuals from working in any APRA-regulated industry
• Commencing civil proceedings or referring matters for criminal prosecution

In the rare event that a regulated entity fails, APRA’s resolution function is designed to manage the exit in an orderly manner. The primary goal of resolution is to protect depositors and policyholders while minimising disruption to the financial system.

An additional layer of protection is provided by the Financial Claims Scheme (FCS), an Australian Government scheme administered by APRA that protects the deposits of customers with ADIs.

Coordination Between APRA & ASIC

APRA and the ASIC work together to regulate entities under their respective purviews, aiming to minimise regulatory duplication. This coordination is particularly evident in how they handle financial resource and risk management obligations for dually regulated entities.

To avoid overlap, bodies regulated by APRA are generally exempt from certain Australian Financial Services (AFS) and ACL obligations because they are already subject to APRA’s comprehensive prudential standards.

Key exemptions include:

Exemption Area	Rationale for Exemption
Adequate financial resources	An APRA-regulated licensee is exempt from this obligation under the National Consumer Credit Protection Act 2009 (Cth) because APRA imposes its own capital and liquidity requirements.
Risk management systems	The obligation to have adequate risk management systems under both the AFS and credit licensing regimes does not apply, as APRA’s framework includes extensive risk management standards.

This coordinated approach ensures that while APRA focuses on prudential soundness, ASIC can focus on market integrity and consumer protection without imposing duplicative requirements.

The regulators maintain open communication, share information about licensees, and consult on significant actions such as licence variations, suspensions, or cancellations. However, it is important to note that related bodies corporate of an APRA-regulated entity may still be subject to ASIC’s requirements if their activities are not central to APRA’s prudential oversight.

Exemptions from Adequate Financial Resources & Risk Management Obligations Under APRA Supervision

Definition of Bodies Regulated by Australian Prudential Regulation Authority

A “body regulated by APRA” is defined under section 3(2) of the Australian Prudential Regulation Authority Act 1998 (Cth). The APRA serves as the prudential regulator for a significant portion of Australia’s financial services industry, overseeing the financial stability and soundness of these institutions.

Entities that fall under APRA’s supervision and are considered “bodies regulated by APRA” typically include:

• Banks
• Mutuals, such as building societies and credit unions
• General insurance and reinsurance companies
• Life insurance companies
• Private health insurers
• Friendly societies
• Most members of the superannuation industry

These institutions are subject to APRA’s comprehensive prudential framework, which includes stringent requirements for financial health and risk management.

Exemption from Financial Resource & Risk Management Obligations

An ACL holder that is a body regulated by APRA is exempt from certain general conduct obligations under the National Consumer Credit Protection Act 2009 (Cth). Specifically, paragraph 47(1)(l) of the Act exempts these entities from the requirements to have adequate financial resources and adequate risk management systems.

This exemption exists because APRA already imposes robust prudential standards on these institutions, covering financial adequacy and risk management. To avoid regulatory duplication, the law recognises that an APRA-regulated licensee is already meeting comparable obligations. Therefore, ASIC does not enforce its own separate financial and risk management requirements on these licence holders.

Scope of Exemptions Including Related Bodies Corporate

The exemption from financial and risk management obligations does not automatically extend to all entities within a corporate group. If you are a related body corporate of an APRA-regulated entity, you are still required to comply with the financial resource and risk management obligations under your ACL.

APRA’s regulatory focus is on the prudential soundness of the institution it directly supervises and the stability of the broader financial system. The financial capacity of a subsidiary or related entity may not be considered material to APRA’s prudential objectives for the parent institution. Consequently, these related entities must independently satisfy ASIC’s requirements if they engage in credit activities that require an ACL.

Practical Implications for Australian Credit Licence Holders

For an ACL holder that is also a body regulated by APRA, the primary practical implication of this exemption is the reduction of regulatory duplication. These licence holders are not burdened with meeting two different sets of financial and risk management standards from two separate regulators. Instead, they adhere to the comprehensive prudential framework established and enforced by APRA.

This streamlined approach is a deliberate feature of Australia’s dual-regulator system. ASIC and APRA coordinate their regulatory activities to ensure consistency and efficiency. This coordination includes sharing information and consulting on matters related to dual-regulated entities, which helps minimise overlap and creates a more coherent regulatory environment for the financial service provider.

Consequences of Non-Compliance & Enforcement Actions

ASIC’s Enforcement Powers & Penalties

The ASIC holds significant powers to enforce compliance with financial resource and risk management obligations under the National Credit Protection framework. These powers include:

Enforcement Tool / Mechanism	Description
Suspension or Cancellation of Licences	ASIC can suspend or cancel an ACL if a licensee is not complying or is likely to contravene obligations, potentially without a hearing in urgent cases.
Imposition of Penalties	Breaches may attract significant civil penalties for individuals (up to 5,000 penalty units) and corporations (up to 10% of annual turnover).
Banning Orders	ASIC can issue orders prohibiting individuals or entities from engaging in credit activities to protect the public. Breaching a banning order is a criminal offence.
Enforceable Undertakings and Settlements	Used to resolve disputes without litigation, allowing licensees to provide compensation to consumers, though ASIC has adopted a more litigious approach.
Reporting and Compliance Certificates	Licensees must lodge annual compliance certificates. Failure to do so is a strict liability offence subject to penalties.
Liability for Representatives	Licensees are held responsible for the conduct of their representatives and may be liable for breaches they commit.

These enforcement tools enable ASIC to maintain the integrity of the credit licensing regime and protect consumers from financial harm.

APRA’s Enforcement & Resolution Powers

The APRA oversees entities under its prudential supervision, including ADIs. APRA’s enforcement and resolution powers include:

Category	Description
Directions and Conditions	APRA can issue directions for entities to take or refrain from actions and can impose or vary conditions on an entity’s licence.
Bans on Individuals	APRA has the power to ban individuals from holding key positions if they are deemed not fit and proper or pose risks to an institution’s safety.
Supervisory Actions	APRA conducts ongoing supervision through onsite reviews and data analysis to identify and address risks proactively.
Resolution Measures	In the event of an entity’s failure, APRA can manage an orderly exit, including using the Financial Claims Scheme (FCS) to protect depositors.
Consultation with Other Regulators	APRA coordinates with ASIC and others to avoid duplication. ASIC must consult APRA before taking actions that could affect an APRA-regulated entity’s business.
Enforcement Before Imminent Risk	APRA can use its enforcement powers proactively to maintain prudential standards and deter misconduct before risks become imminent.

APRA’s enforcement framework is designed to uphold financial stability and protect the interests of depositors, policyholders, and the broader financial system.

Impact on Licensees & Representatives

Non-compliance with financial resource and risk management obligations can have serious consequences for both licensees and their representatives, including:

Impact Area	Description of Consequences
Legal Liability	Licensees can be held legally responsible for breaches committed by their representatives, including liability for client losses due to non-compliance.
Reputational Damage	Enforcement actions, licence suspensions, or public banning orders can severely damage a licensee’s or representative’s reputation and client trust.
Operational Disruption	Suspension or cancellation of a licence can halt a licensee’s ability to engage in credit activities, leading to significant business and financial harm.
Personal Consequences	Individuals may face banning orders, criminal penalties, or disqualification from the industry, impacting their career and livelihood.
Increased Regulatory Scrutiny	Non-compliance can lead to intensified supervision and ongoing monitoring by ASIC and APRA, increasing compliance costs and operational burdens.

To mitigate these risks, licensees should maintain robust compliance and risk management systems, ensure their representatives are adequately trained and supervised, and promptly address any breaches or regulatory concerns.

If you have questions about your obligations or need assistance with compliance or enforcement matters, it is advisable to seek legal advice to understand your rights and responsibilities fully.

Conclusion

An ACL holder regulated by APRA is exempt from the standard financial resource and risk management obligations enforced by ASIC, as they are already subject to APRA’s own comprehensive prudential framework. Understanding the precise scope of this exemption is critical for all licence holders, as non-compliance with the applicable regulatory regime can lead to severe enforcement actions from either regulator.

Managing these dual regulatory requirements demands a clear understanding of your specific circumstances. For trusted ACL compliance guidance in clarifying your financial and risk management obligations, contact our expert lawyers at AFSL House to ensure your financial service operations remain fully compliant and secure.

Frequently Asked Questions