Restricted Banking Authority Disclosure Statement

Disclosure Requirements

Avenue Bank Ltd (Avenue Bank) is authorised by the Australian Prudential Regulation Authority (APRA) to operate under a Restricted Authorised Deposit-taking Institution licence until 7th September 2023. Under this authority Avenue Bank has restrictions on the amount of deposits it can take and has simpler prudential requirements while it builds its resources and capabilities.

Under this restricted licence Avenue Bank is not required to meet the full ADI prudential framework and we will not be offering banking products to the general public.

Avenue Bank has put in place arrangements to protect customers in the event it is required by APRA to discontinue banking business and exits the banking industry. This includes:

• Avenue Bank being required by APRA to contact customers to advise how they are impacted, e.g. deposits may be returned or transferred to another bank;

• the Banking Act 1959 provisions for the protection of depositors apply to Avenue Bank; and

• Avenue Bank is covered by the Australian Government Financial Claims Scheme (FCS). The FCS applies only to protected accounts. It is important customers check the terms and conditions of their specific product to determine if it is protected under the FCS. Further information is available at www.avenuebank.com.au/fcs

More details about Avenue Bank’s restricted licence is available at Banking Act s9(3) ADI authority for Avenue Bank Limited (apra.gov.au).

Requirements of the Prudential Standards for Restricted Banking Authority

Under the restricted Banking Authority, there are simpler prudential requirements that apply to Avenue Bank while resources and capabilities are being developed. Avenue Bank has until 7 September 2023 to meet APRA’s full prudential requirements. A summary of the prudential requirements that Avenue Bank is subject to during the restricted phase are as follows.

Capital Adequacy

Avenue Bank is required to hold a minimum Prudential Capital Requirement of:

• $3 million plus resolution reserve of $1 million, or

• 20 per cent of adjusted assets, whichever is higher.

Avenue Bank’s Board of Directors is responsible for ensuring that Avenue Bank maintains an appropriate level of capital commensurate with the level and extent of risk to which Avenue Bank is exposed from its activities.

Measurement of Capital

Avenue Bank is required to hold its entire capital requirement as Common Equity Tier 1 Capital (CET1). Avenue Bank will be required to make all necessary regulatory adjustments to its capital in accordance with Attachment D to APS 111 from its CET1.

Liquidity

Avenue Bank must hold at all times Minimum Liquidity Holdings (MLH) liquid assets equal to the greater of:

• 20 per cent of liabilities; or

• the value of protected accounts plus the resolution reserve.

Avenue Bank’s Board of Directors is responsible for ensuring that Avenue Bank maintains an appropriate level of liquidity to ensure it is at all times able to meet the liquidity requirements.

Governance

Certain aspects of Prudential Standard CPS 510 Governance relating to Board composition, representation and assessment are modified for the purpose of Avenue Bank’s restricted Banking Authority.

Fit and Proper

Avenue Bank must meet the full requirements of Prudential Standard CPS 520 Fit and Proper and ensure the fitness and propriety of the people who are responsible for its management and oversight.

Strategy to ADI Licence

Avenue Bank must maintain a plan that sets out how it will meet the full prudential requirements within the required timeframe set by APRA.

Exit Plan

Avenue Bank must maintain a plan that sets out its approach for returning funds to depositors and surrendering its Banking Authority in the event it is required to discontinue banking business and exit the banking industry. The exit plan should enable Avenue Bank to conduct an orderly exit in a timely manner.

Operational Risk

Avenue Bank must have in place management information systems and monitoring mechanisms to assist with early detection and correction of deficiencies in procedures for managing operational risk.

Business Continuity Management

APRA expects Avenue Bank to meet customer commitments in the event of a disruption. As a minimum, Avenue Bank must demonstrate it has considered its exposure to, and has developed response plans for, plausible disruption scenarios to its business operations which are commensurate with the nature, size and complexity of its operations.

Avenue Bank must notify APRA no later than 24 hours after it experiences a major disruption that has the potential to have a material impact on its risk profile.

Outsourcing

Avenue Bank must be able to demonstrate to APRA as a minimum that any outsourcing arrangements for material business activities that impact on the strategic plans during the restricted phase meet the requirements of Prudential Standard CPS 231 Outsourcing. Avenue Bank must also ensure it manages and monitors each outsourcing relationship at all times.

Associations with Related Entities

All entities controlled by Avenue Bank are related entities. The following limits apply to exposures to these related entities:

• related entity regulated by APRA – 25% of Avenue Bank’s CET1 Capital;

• related entity not regulated by APRA – 15% of Avenue Bank’s CET1 Capital; and

• aggregate exposure to all related entities – 35% of Avenue Bank’s CET1 Capital.

Large Exposures

A large exposure is an exposure to a counter-party or group of related counter-parties greater than or equal to 10% of CET1 Capital.

Aggregate exposures to a counter-party or group of related counter-parties are subject to the following limits:

• unrelated external parties (other than governments, central banks and ADIs) – 25% of adjusted CET1 Capital;

• unrelated Authorised Deposit-taking Institution (ADIs) – 50% of CET1 Capital, with aggregated exposure to non-deposit-taking subsidiaries capped at 25% of adjusted CET1 Capital;

Avenue Bank must obtain APRA’s prior approval for any proposed exposures in excess of the prescribed limits set out above.

Audit and Related Matters

Avenue Bank is expected to meet the full requirements of APS 310 Audit and Related Matters. External auditors will be expected to provide assurance against Avenue Bank’s compliance with the applicable Restricted ADI reporting and prudential requirements.

Risk Management

Avenue Bank must comply with Prudential Standard CPS 220 Risk Management and is expected to demonstrate that its risk management framework is appropriate and that it has adequate systems and controls in place to monitor and manage the risk it is exposed to during the restricted banking phase.

Financial Claims Scheme

Avenue Bank is required to ensure it is adequately prepared should it become a declared ADI under the Financial Claims Scheme.

Disclosure Requirements

Avenue Bank must ensure it is clear to all its customers and potential customers that it is operating under a restricted licence and does not yet meet the full prudential framework.

Notification requirements

APRA must be immediately informed, in accordance with section 62A of the Banking Act, of:

1. any breach of the minimum capital adequacy requirements and any potential breach of these requirements (e.g. breaches of trigger ratios), including remedial actions taken/planned to deal with the problem;

2. any breach of minimum liquidity holdings, or concerns over the adequacy of liquidity holdings;

3. any concerns that a large exposure or risk concentration may have the potential to impact materially upon capital adequacy, along with proposed measures to address these concerns; or

4. any breach or potential breach of a limit specified in the Prudential Standard prescribing Avenue’s restricted ADI prudential requirements.