Banking exemption No. 2 of 2026

Banking exemption No. 2 of 2026

EXPLANATORY STATEMENT

Prepared by the Australian Prudential Regulation Authority (APRA)

Banking Act 1959, section 11

Under subsection 11(1) of the Banking Act 1959 (the Act), APRA may, in writing, determine that any or all of the provisions of the Act referred to in paragraphs 11(1)(a) to (e) of the Act do not apply to a person while the determination is in force.

On 15 July 2026, APRA made Banking exemption No. 2 of 2026 (the Legislative Instrument) which replaces Banking exemption No. 1 of 2018 – Foreign Bank Securities made on 21 March 2018 (the 2018 Instrument), and determines that section 66 of the Act does not apply to any member of the class of persons described in the schedule to the instrument in relation to the assumption or use in Australia of the restricted words ‘bank’, ‘banker’ and ‘banking’ by that member, and makes the determination subject to the conditions specified in the attached schedule of conditions.[1]

The Legislative Instrument commences on the date it is registered on the Federal Register of Legislation (FRL).

1.             Background

APRA’s mandate is to ensure the safety and soundness of prudentially regulated financial institutions so that they can meet their financial promises to depositors, policyholders, and fund members within a stable efficient, and competitive financial system.

This mandate involves restricting the use of certain words and phrases by financial institutions that are not regulated by APRA to prevent consumers being misled into assuming these entities are regulated by APRA.

Under section 66 of the Act, it is an offence for a person to carry on a financial business and assume or use, in Australia, a restricted word or expression in relation to that financial business. Exceptions apply where:

• subsection 66(1AB) or subsection 66(1AC) allows the assumption or use of that word or expression;
• APRA consents to the assumption or use of that word or expression; or
• where there is a determination in force under section 11 that section 66 does not apply to the person. This determination can be applied to a class of persons under paragraph 11(2)(a) of the Act.

The 2018 Instrument determined that foreign corporations that are authorised as banks in their home countries are exempt from section 66 of the Act when raising funds in Australian wholesale capital markets by way of issuing securities, subject to the conditions specified in paragraphs 1 to 3 of that determination. These conditions are:

• the exemption is limited to permitting the use of the terms ‘bank’, ‘banker’ or ‘banking’ and words of like import;
• the securities being offered and/or traded by the foreign corporation are in parcels not less than $500,000; and
• it is clearly stated on securities, and in statements prominently displayed in any promotional, marketing, disclosure and other similar material, where in paper, electronic, website or other form, related to the issue of the securities that:
  • the securities are issued by an entity that is not authorised under the Act, and the entity is not supervised by APRA; and
  • an investment in securities issued by the entity is not covered by the depositor protection provisions in section 13A of the Act, and will not entitle holders of securities to claim under Division 2AA – Financial claims scheme for account holders with insolvent authorised deposit-taking institutions (ADIs) in the Act.

On 18 June 2025, APRA consulted on proposed amendments to the 2018 Instrument. These included expanding the exemption to include a broader set of foreign entities. The purpose of the proposals was to ensure the exemption includes the types of entities that commonly obtain APRA’s consent to use restricted words when issuing securities in Australian wholesale capital markets.

2.             Purpose and operation of the instrument

The purpose of the Legislative Instrument is to continue the exemption under section 66 of the Act with some minor modifications to implement the changes resulting from APRA’s 2025 consultation.

The Legislative Instrument expands the exemption to apply to, in addition to foreign banks:

• foreign bank holding companies – a holding company for a banking group that is prudentially regulated or authorised as a bank holding company (or equivalent) in its home country;
• foreign bank treasury companies – a foreign corporation that is a wholly owned subsidiary of either a prudentially regulated or authorised bank or a prudentially regulated or authorised bank holding company and its purpose must be the raising of funds for the purposes of on-lending to that bank, bank holding company or other member of the banking group of which it is a part;
• multilateral development banks – an entity that has been established or chartered by, and continues to be owned or financially supported by, more than one country and operates as an instrument for the provision of financing to promote economic or social development; and
• foreign subsidiaries of Australian banking groups – a foreign corporation that is a wholly owned subsidiary of either an APRA-regulated ADI or an APRA-regulated non-operating holding company.

These entities (or their parents or groups) must be prudentially regulated in their home countries (excluding multilateral development banks). For example, a mutually owned entity that is regulated equivalently to banks (i.e. same regulatory framework and regulator) would be captured by the exemption. Foreign subsidiaries of Australian banking groups must have an Australian parent that is regulated by APRA.

The conditions contained in the 2018 Instrument remain relevant and have been incorporated into the Legislative Instrument without significant modification.

Details of the Legislative Instrument

See Attachment A.

Documents incorporated by reference

Under paragraph 14(1)(a) of the Legislation Act 2003, the Legislative Instrument incorporates by reference, as in force from time to time, Acts of Parliament and associated delegated laws.

These documents may be freely obtained on the Federal Register of Legislation at www.legislation.gov.au.

3.             Consultation

On 18 June 2025, APRA consulted on a set of minor updates to APRA’s exemptions and determinations under section 66 of the Act. This included amendments to exemptions for foreign entities when issuing debt securities in Australian wholesale capital markets.

APRA received four submissions in response to this consultation, which were supportive of the proposal to broaden the existing exemption to capture more entities. One submission recommended APRA include more entities in the exemption, and another submission recommended APRA broaden the types of activities that exempt entities can undertake.

After considering these recommendations, including whether the changes would be consistent with the consultation objectives and APRA’s risk appetite for foreign entities to use restricted words without a licence when undertaking business banking in Australia, APRA amended its original proposal to include a broader set of entities.

APRA did not expand the activities that exempt entities could be undertaken when using restricted terms without an ADI licence. The exemption continues to apply only to the issuance of debt securities in Australia’s wholesale capital markets.

APRA is satisfied the consultation was appropriate and reasonably practicable.

4.             Impact Analysis

The Office of Impact Analysis confirmed that an Impact Analysis was not required given the changes do not make a significant difference from the status quo.

5.             Statement of compatibility prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

A statement of compatibility prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 is provided at Attachment B to this Explanatory Statement.

ATTACHMENT A

Details of the Legislative Instrument

Interpretation

Interpretation is a machinery provision which provides definitions for ‘APRA’ and ‘restricted word’ as used within the determination.

1.      Exempt Class

This section sets out the entities that are captured by the exemption.

This section sets out the conditions that entities captured by the exemption are subject to.

Paragraph 1 sets out the activities that exempt entities can undertake when using restricted terms, raising funds in Australian wholesale capital markets.

Paragraph 2 restricts the types of issuances to those that do not need disclosure to investors under Part 6D.2 of the Corporations Act 2001.

Paragraph 3 restricts issuances to parcels of more than A$500,000 in size.

Paragraph 4 sets out disclosure requirements that must be included in marketing materials. This includes that the entity is not supervised by APRA and that the investment is not covered by the Financial Claims Scheme.

Interpretation

Interpretation is a machinery provision which provides definitions for the types of entities that are referred to in the Schedule.

ATTACHMENT B

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Banking exemption No. 2 of 2026

This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (HRPS Act).

Overview of the Legislative Instrument

The purpose of the Legislative Instrument is to revoke Banking (Exemption) Order No. 1 of 2018 and replace it with Banking exemption No. 2 of 2026.

Banking exemption No. 2 of 2026 exempts foreign entities from section 66 of the Act in relation to the assumption or use in Australia of the restricted words ‘bank’, ‘banker’ and ‘banking’ when issuing debt securities in Australian wholesale capital markets.

Human rights implications

APRA has assessed the Legislative Instrument and is of the view that it does not engage any of the applicable rights or freedoms recognised or declared in the international instruments listed in section 3 of the HRPS Act. Accordingly, in APRA’s assessment, the Legislative Instrument is compatible with human rights.

Conclusion

This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.

[1] Section 66 of the Act is in Part IX of the Act.