Banking (prudential standard) determination No. 2 of 2007
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 varied APS 510. Banking (prudential standard) determination No. 2 of 2007 varies APS 510.
- Background
One of the key principles in APS 510 is that of the independence of board directors. In assessing whether a director is independent, APS 510 previously required a Board to apply the definition of independence set out in the ASX Corporate Governance Council’s Principles of Good Corporate Governance and Best Practice Recommendations.
In August 2007, the ASX Corporate Governance Council released the 2nd edition of this document, titled Corporate Governance Principles and Recommendations (Principles). This document no longer provides a definition of independence but identifies a number of “relationships affecting independent status” that Boards should consider in determining a director’s independence.
In developing APS 510, APRA has, where possible, aligned its requirements and definitions with ASX Corporate Governance Council Principles. APRA intends to continue an alignment with these Principles, while maintaining its approach of providing clarity about its expectations for the independence of directors of APRA-regulated institutions, an approach which has worked well in practice. APRA intends APS 510 to reflect some of the recent revisions to the ASX Corporate Governance Council’s Principles by incorporating the wording of Box 2.1 of the Principles that sets out the ‘relationships affecting independent status’; in APRA’s governance standard, however, these relationships will be circumstances that preclude a director from being independent for the purpose of serving on the Board of an APRA-regulated institution.
APRA also intends to require that the Board’s formal policy on Board renewal incorporate the need to give consideration to the length of service of a director.
As well as the changes outlined above, a number of other minor amendments have been made to APS 510 to remove obsolete transition arrangements, ensure updated external documents are accurately referenced in the standard and to rectify minor drafting inconsistencies.
2. Purpose of the instrument
The instrument varies APS 510 to incorporate updated Principles from the ASX Corporate Governance Council and to make a number of minor clarifications to the standard.
3. Consultation
APRA consulted with industry in relation to the variation to APS 510.