APRA launches investigation into Xinja’s capital-raising tactics

“Neither the former Xinja entity nor Techstacked have raised any capital since the ADI license was returned to APRA.”

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Xinja was founded in 2017 and obtained a banking license two years later. The digital bank quickly attracted over 40,000 customers by offering high interest deposit accounts but without any income generating products like loans, the company quickly depleted its capital.

Auditors had repeatedly warned that Xinja risked violating its legal requirements to operate and was dependent on raising new capital. Xinja’s most recent auditors, PwC, resigned in June, according to recent documents filed by the companies.

“Our audit needs are different now that we are no longer in retail banking. The change was made by agreement with PwC as part of an orderly transition to a more suitable auditor for a company of our size and scope, ”said a spokesperson for Techstacked.

The scope of APRA’s investigation includes the period in which Xinja announced that it had reached a $ 433 million deal with the Middle East group, World Investments, which it described as “the biggest investment in a neobank or an Australian start-up ”.

The Age and Sydney Morning Herald reported in January that the contract with World Investments was highly conditional, although Xinja claimed that $ 160 million would be transferred “immediately” and would close the deal with potential investors. The deal was brokered by Michael Gale, a Byron Bay-based consultant, who has a string of sour trade deals behind him. Mr Gale said he had not been informed by APRA of his investigation and there is no suggestion that Mr Gale himself is under investigation.

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World Investments money never materialized, and Xinja investors were told on New Year’s Eve that their shares may be worthless. The company first sought to raise $ 5 million more to fund an equity trading platform in the United States, but then abandoned that business and vowed to pursue a lower public profile under his new name.

After Xinja announced his intention to surrender his banking license, Mr. Gale said World Investments offered to “save the bank” by acquiring a controlling stake in the company but was unable to obtain the necessary regulatory approvals, which ended the negotiations.

APRA responded to the collapse by raising the bar for new entrants by imposing higher capital requirements and forcing companies to make plans to launch income-generating products.

A source close to the APRA investigation, who declined to be named because she was discussing sensitive issues, said there remained “a lack of clarity” around Xinja’s disappearance.

“There was very little information other than when they said they were walking away from the bank, it seemed really sudden,” the source said. “It is difficult to know where the investigation will go, but I hope it will determine if something untoward has happened.”

By law, APRA can appoint a person to investigate and report on “prudential matters” which include the impact of a business on the stability of the Australian financial system or the failure to keep the business in business. a healthy financial situation. Mr Davies was previously Director of KordaMentha Liquidators and Investigator for the Australian Securities and Investments Commission. APRA declined to comment.

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