Banking (prudential standards) determination No.2 of 2008
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Banking Act 1959, section 11AF
Under subsection 11AF(3) of the Banking Act 1959 (Banking Act) APRA may, in writing, revoke a prudential standard made in relation to prudential matters to be complied with by all authorised deposit-taking institutions and authorised non-operating holding companies. Under subsections 11AF(1) APRA may, in writing, determine a prudential standard made in relation to prudential matters to be complied with by all authorised deposit-taking institutions and authorised non-operating holding companies
- Background
The Financial Sector Legislation Amendment (Review of Prudential Decisions) Act 2008 (RPD Act) amended the Banking Act. Amongst other things, the RPD Act introduced a court-based process for disqualifying an individual from certain roles in an authorised deposit-taking institution; it removed the necessity for ministerial consent for some decisions; and it streamlined some of APRA’s directions powers where appropriate.
The Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007 (SRR Act) also amended the Banking Act. Amongst other things, the SRR Act introduced whistleblower protection; it provided for APRA to exercise discretion to vary prudential requirements for a regulated institution; and it harmonised breach reporting across the Life Insurance Act 1995, the Insurance Act 1973, the Banking Act 1959 and the Superannuation Industry (Supervision) Act 1993.
Prudential Standard APS 520 Fit and Proper (APS 520) applies to all authorised deposit-taking institutions and authorised non-operating holding companies. It sets out minimum requirements for these institutions in determining the fitness and propriety of individuals to hold positions of responsibility.
2. Purpose of the Instrument
In light of the recent amendments to the Banking Act, outlined above, APRA is revoking and re-making APS 520 with minor amendments. This is to ensure that APS 520 continues to be consistent with the Banking Act.
3. Operation of the Instrument
This Instrument revokes APS 520 and re-makes the prudential standard with the following minor amendments:
(i) paragraph 18 contains references to sections of the Banking Act that refer to the fit and proper criteria set out in the prudential standards. These references have been updated to remain consistent with the Banking Act;
(ii) paragraph 21 contains references to sections of the Banking Act that refer to the fit and proper criteria of an auditor set out in the prudential standards. These references have been updated to remain consistent with the Banking Act;
(iii) a footnote has been inserted to the heading above paragraph 33 referring the reader to the relevant section of the Banking Act and prudential standards. It has been included to ensure this prudential standard is read in conjunction with the whistleblowing provisions in the Banking Act. It improves consistency between the fit and proper standards across the APRA-regulated industries; and
(iv) paragraph 46 has been inserted to improve consistency between the fit and proper prudential standards across different APRA-regulated industries. Paragraph 46 of the new APS 520 replicates paragraph 48 of Prudential Standard GPS 520 Fit and Proper (March 2006), a prudential standard made under section 32 of the Insurance Act 1973 (Insurance Act). Paragraph 46 reflects section 11AF(2) of the Banking Act which was amended by the SRR Act so as to be consistent with subsection 32(3D) of the Insurance Act.
4. Consultation
APRA considered that public consultation was not necessary for the amendments to APS 520. The amendments are minor and consequential to amendments to the Banking Act. The Treasury conducted public consultation in relation to these amendments to the Banking Act.
APRA undertook public consultation on the broader proposal to introduce fit and proper requirements across all APRA-regulated institutions.
Overview
The Banking (prudential standards) determination No.2 of 2008, issued by the Australian Prudential Regulation Authority (APRA), serves to revoke and re-make Prudential Standard APS 520 Fit and Proper (APS 520) with minor amendments. This determination was enacted to ensure APS 520 remains consistent with recent amendments to the Banking Act 1959, specifically those introduced by the Financial Sector Legislation Amendment (Review of Prudential Decisions) Act 2008 and the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007. These amendments aimed to introduce a court-based process for disqualifying individuals from certain roles, streamline some of APRA’s directions powers, and enhance whistleblower protection, among other changes. The policy objective behind these legislative amendments was to refine the regulatory framework governing authorised deposit-taking institutions and authorised non-operating holding companies, ensuring they align with contemporary standards and practices.
Scope and Application
The Banking (prudential standards) determination No.2 of 2008 applies to all authorised deposit-taking institutions and authorised non-operating holding companies, ensuring that these entities comply with the prudential standards set by the Australian Prudential Regulation Authority (APRA) as outlined in the Banking Act 1959. The geographic reach of this Act is national, applying across Australia. It aims to maintain and enhance the stability and efficiency of the banking sector by setting minimum requirements for the fitness and propriety of individuals who hold positions of responsibility within these institutions. The Act's amendments are minor and consequential to the legislative changes introduced by the Financial Sector Legislation Amendment (Review of Prudential Decisions) Act 2008 and the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007, ensuring that the prudential standards remain consistent with the updated Banking Act provisions. While APRA determined that public consultation was unnecessary for these specific amendments, broader consultation was previously conducted by the Treasury on the legislative amendments themselves.
Key Provisions
The main operative sections of this legislation pertain to the revocation and re-making of Prudential Standard APS 520 Fit and Proper (APS 520) (subsection 11AF(3) and subsection 11AF(1) of the Banking Act 1959). APS 520 applies to all authorised deposit-taking institutions and authorised non-operating holding companies, setting out minimum requirements for these institutions in determining the fitness and propriety of individuals to hold positions of responsibility. The standard has been updated to reflect recent amendments to the Banking Act, including changes introduced by the Financial Sector Legislation Amendment (Review of Prudential Decisions) Act 2008 and the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007. The amendments ensure consistency between APS 520 and the Banking Act, as well as across other APRA-regulated industries.
The Act imposes several obligations and requirements on authorised deposit-taking institutions and authorised non-operating holding companies. Firstly, these institutions must comply with the updated APS 520, which sets out minimum requirements for determining the fitness and propriety of individuals in positions of responsibility. Secondly, institutions must ensure that their processes and criteria for assessing individuals' fitness and propriety are consistent with the updated standard. Additionally, institutions must maintain appropriate documentation and records to demonstrate compliance with APS 520. These obligations aim to ensure that individuals holding positions of responsibility within authorised deposit-taking institutions and authorised non-operating holding companies are fit and proper, thereby promoting the stability and integrity of the financial sector.
Failure to comply with the requirements of APS 520 may result in various civil and criminal consequences. While specific penalties are not outlined in the legislation, non-compliance with prudential standards can lead to enforcement actions by the Australian Prudential Regulation Authority (APRA). These actions may include issuing directions to the institution, imposing financial penalties, or taking more severe measures such as revoking the institution's authorisation. In cases where non-compliance is found to have caused harm or significant risk to the financial system, individuals responsible for the breach may face personal liability, including fines and imprisonment. The severity of the consequences will depend on the nature and extent of the non-compliance, as well as any relevant provisions in the Banking Act and other applicable legislation.
In summary, this legislation revokes and re-makes Prudential Standard APS 520 Fit and Proper, updating it to reflect recent amendments to the Banking Act. Authorised deposit-taking institutions and authorised non-operating holding companies are required to comply with the updated standard, ensuring that individuals in positions of responsibility meet the minimum fitness and propriety criteria. Failure to comply with APS 520 may result in enforcement actions by APRA and potential civil or criminal consequences for the institution and individuals involved. The legislation aims to maintain the stability and integrity of the financial sector by promoting the appointment of fit and proper individuals in key roles within regulated institutions.