Banking (prudential standard) determination No. 15 of 2006
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Banking Act 1959, subsection 11AF(3)
Under paragraphs 11AF(1)(a) and (b) of the Banking Act 1959 (the Act), APRA has the power to determine standards (prudential standards), in writing, in relation to prudential matters to be complied with by authorised deposit-taking institutions (ADIs). Under subsection 11AF(3) of the Act, APRA may, in writing, vary or revoke a prudential standard.
Banking (prudential standard) determination No. 2 of 2006 determined Prudential Standard APS 510 Governance (APS 510) to take effect on 1 October 2006. Banking (prudential standard) determination No.15 of 2006 (the instrument) varies APS 510.
- Background
APRA has identified that paragraph 33 of APS 510 will, for some ADIs, produce an unintended consequence with respect to the need for the Board Audit Committee to provide an objective non-executive review of the effectiveness of the risk management framework. This requirement was intended to ensure that there is a Board Committee which has responsibility for review of an ADI’s risk management function. Some ADIs already have a Board Committee, other than the Board Audit Committee, with this responsibility. This is acceptable to APRA. However, the wording of paragraph 33 means that these ADIs will be in breach of the prudential standard if they do not make review of the risk management framework an explicit responsibility of the Board Audit Committee. APRA therefore seeks to vary APS 510 to address this matter.
2. Purpose of the instrument
The instrument varies APS 510 to allow a Board Committee, whether the Board Audit Committee or another Board Committee, to have responsibility for the objective non-executive review of the ADI’s risk management framework.
3. Consultation
APRA consulted extensively with industry in relation to APS 510, which is varied by the instrument. This change will be favourable to ADIs as it provides greater scope for them to meet the requirement for a Board Committee which has responsibility for the objective non-executive review of the risk management framework (by removing the current requirement that this review be performed by the Board Audit Committee).