Banking, Insurance and Life Insurance (prudential standards) determination No. 4 of 2011

EXPLANATORY STATEMENT

Prepared by the Australian Prudential Regulation Authority

Banking Act 1959, section 11AF

Insurance Act 1973, section 32

Life Insurance Act 1995, section 230A

APRA may, in writing, 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.  

1.    Background

APRA has powers under the Banking Act, Insurance Act and Life Insurance Act to determine prudential standards that apply to ADIs and authorised banking NOHCs, general insurers and authorised insurance NOHCs, and life companies and registered life NOHCs.

APRA's policy is to issue prudential standards that apply across the banking, general insurance and life insurance industries that are broadly consistent in their requirements. Specifically, APRA considers that the risks arising from outsourcing, the management of business continuity, governance and the fitness and propriety of responsible persons are similar regardless of the industry within which the regulated institution operates.

To date, APRA has issued three individual prudential standards covering fit and proper requirements in relation to each APRA-regulated industry. The content of these standards is nearly identical and sets out minimum requirements for APRA-regulated institutions in determining the fitness and propriety of individuals to hold positions of responsibility. The prudential standards are as follows:

• Prudential Standard APS 520 Fit and Proper (APS 520) applying to ADIs and authorised banking NOHCs;
• Prudential Standard GPS 520 Fit and Proper (GPS 520) applying to general insurers and authorised insurance NOHCs; and
• Prudential Standard LPS 520 Fit and Proper (LPS 520) applying to life companies and registered life NOHCs.

In line with its publicly stated desire to supervise regulated institutions operating in different industries in a consistent manner, APRA is consolidating the requirements contained in these three industry-specific prudential standards into a single prudential standard with cross-industry application. The requirements currently contained in APS 520, GPS 520 and LPS 520 are consolidated into a new prudential standard, Prudential Standard CPS 520 Fit and Proper (CPS 520).

2.      Purpose of the instrument

This instrument revokes APS 520, GPS 520 and LPS 520 and replaces them with a new prudential standard, CPS 520. CPS 520 must be complied with by ADIs and authorised banking NOHCs, general insurers and authorised insurance NOHCs, and life companies (including friendly societies) and registered life NOHCs.

CPS 520 sets out minimum requirements for regulated institutions in determining the fitness and propriety of individuals to hold positions of responsibility. It aims to ensure that persons who are responsible for the management and oversight of a regulated institution have appropriate skills, experience and knowledge, and act with honesty and integrity.

3. Operation of the instrument

The key differences between CPS 520 and the industry-specific prudential standards it replaces include that CPS 520:

• applies to all APRA-regulated institutions in the banking, general insurance and life insurance industries, rather than operating via separate, although nearly identical, standards applying to different APRA-regulated institutions in individual industries; and
• contains a number of minor amendments to clarify or harmonise the existing obligations. These minor amendments do not alter the substance of those obligations.

4. Consultation

In December 2010, APRA publicly consulted on CPS 520 as part of a broader consultation package on its initiative to harmonise certain prudential standards across APRA-regulated industries. APRA received a small number of submissions that were generally supportive of the approach and APRA has implemented specific feedback received, where appropriate, in CPS 520.

5.  Regulation Impact Statement

A Regulation Impact Statement for the changes described in this Explanatory Statement was not required.