Banking, Insurance and Life Insurance (prudential standards) determination Nos.  1 and 2 of 2014

EXPLANATORY STATEMENT

Prepared by the Australian Prudential Regulation Authority

Banking Act 1959, subsections 11AF(1) and 11AF(3)

Insurance Act 1973, subsections 32(1) and 32(4)

Life Insurance Act 1995, subsections 230A(1) and 230A(5)

Legislative Instruments Act 2003, paragraph 6(d)

APRA may, in writing, vary or revoke a prudential standard that applies to an APRA-regulated institution under:

• subsection 11AF(3) of the Banking Act 1959 (Banking Act), in relation to authorised deposit-taking institutions (ADIs) and authorised non-operating holding companies (authorised banking NOHCs);
• subsection 32(4) of the Insurance Act 1973 (Insurance Act), in relation to general insurers and authorised non-operating holding companies (authorised insurance NOHCs); and
• subsection 230A(5) of the Life Insurance Act 1995 (Life Insurance Act), in relation to life companies (including friendly societies) and registered non-operating holding companies (registered life NOHCs).

APRA may, in writing, determine a prudential standard that applies to an APRA-regulated institution under:

• subsection 11AF(1) of the Banking Act, in relation to ADIs and authorised banking NOHCs;
• subsection 32(1) of the Insurance Act, in relation to general insurers and authorised insurance NOHCs; and
• subsection 230A(1) of the Life Insurance Act, in relation to life companies (including friendly societies) and registered life NOHCs. 

Pursuant to paragraph 6(d) of the Legislative Instruments Act 2003 (the Legislative Instruments Act), such prudential standards are legislative instruments for the purposes of the Legislative Instruments Act.  

1.    Background

In January 2014, APRA released a new cross-industry prudential standard Prudential Standard CPS 220 Risk Management (CPS 220), to apply to ADIs, general insurers and life insurers, and Level 2 and Level 3 groups. A revised Prudential Standard CPS 510 Governance (CPS 510) was also released to ensure risk management governance principles were aligned to the new CPS 220.

The new and amended standards come into effect from 1 January 2015.

CPS 220 and revised CPS 510 necessitate a series of amendments to existing industry-specific and cross-industry standards. The majority of changes are necessary to remove duplications or to update references.

2.      Purpose and operation of the instruments

The instruments make changes to Prudential Standard CPS 231 Outsourcing (CPS 231) and Prudential Standard CPS 232 Business Continuity Management to incorporate references to CPS 220.

On 3 December 2014, APRA made the following determinations (the instruments) under the relevant provisions of the Banking Act, Insurance Act and Life Insurance Act:

1. Banking, Insurance and Life Insurance (prudential standards) determination No. 1 of 2014, which revokes Prudential Standard CPS 231 Outsourcing made under Banking, Insurance and Life Insurance (prudential standards) determination No.1 of 2012 and determines a new Prudential Standard CPS 231 Outsourcing (CPS 231); and
2. Banking, Insurance and Life Insurance (prudential standards) determination No. 2 of 2014, which revokes Prudential Standard CPS 232 Business Continuity Management made under Banking, Insurance and Life Insurance (prudential standards) determination No.2 of 2012 and determines a new Prudential Standard CPS 232 Business Continuity Management (CPS 232).

The instruments will take effect on 1 January 2015.

3.      Consultation

APRA undertook a seven week consultation on the proposed consequential changes from August 2014.

4.      Regulation Impact Statement

A Preliminary Assessment was submitted the Office of Best Practice Regulation who confirmed that a Regulation Impact Statement is not required.

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 A to this Explanatory Statement.

Attachment A

Statement of Compatibility with Human Rights

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

Banking, Insurance and Life Insurance (prudential standards) determination Nos 1 and 2 of 2014

These instruments are 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.

Overview of the Legislative Instruments

The instruments make changes to Prudential Standard CPS 231 Outsourcing) and Prudential Standard CPS 232 Business Continuity Management to incorporate references to Prudential Standard CPS 220 Risk Management.

Human rights implications

APRA has assessed these instruments and is of the view that they do not engage any of the applicable rights or freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.  Accordingly, in APRA’s assessment, the instruments are compatible with human rights.

Conclusion

These instruments are compatible with human rights as they do not raise any human rights issues.