Banking (prudential standards) determination No.1 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 subsection 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 510 Governance (APS 510) applies to all authorised deposit-taking institutions and authorised non-operating holding companies. It sets out minimum foundations for good governance of regulated institutions. It aims to ensure that regulated institutions are managed in a sound and prudent manner by a competent Board of directors, which is capable of making reasonable and impartial business judgements in the best interests of the regulated institution and which gives due consideration to the impact of its decisions on depositors.
2. Purpose of the Instrument
In light of the recent amendments to the Banking Act, outlined above, APRA is revoking and re-making APS 510 with minor amendments. This is to ensure that APS 510 continues to be consistent with the Banking Act.
3. Operation of the Instrument
This Instrument revokes APS 510 and re-makes the prudential standard with the following minor amendments:
(i) a footnote has been inserted in to the heading above paragraph 58 to ensure this part of the prudential standard is read in conjunction with the whistleblowing provisions in the Banking Act and in Prudential Standard APS 520 Fit and Proper;
(ii) paragraph 60 has been included to preserve transitional relief for auditors that was available under the previous version of APS 510; and
(iii) paragraph 61 has been included to improve consistency between the fit and proper prudential standards across different APRA-regulated industries. Paragraph 60 of the new APS 510 replicates paragraph 65 of Prudential Standard GPS 510 Governance (May 2006), a prudential standard made under section 32 of the Insurance Act 1973 (Insurance Act). Paragraph 61 reflects subsection 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 510. 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 governance requirements across all APRA-regulated institutions.
Overview
The Banking (Prudential Standards) Determination No.1 of 2008, prepared by the Australian Prudential Regulation Authority (APRA), revokes and re-makes Prudential Standard APS 510 Governance (APS 510) with minor amendments. This determination was enacted to ensure that APS 510 remains consistent with recent amendments to the Banking Act 1959, which were 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 legislative amendments addressed several issues, including the introduction of a court-based process for disqualifying individuals from certain roles in authorised deposit-taking institutions, the removal of ministerial consent for some decisions, and the introduction of whistleblower protection, among others. The policy objective of the amendments to APS 510 is to maintain a robust regulatory framework that ensures the sound and prudent management of regulated financial institutions, reflecting the updated legislative environment.
Scope and Application
The Banking (Prudential Standards) Determination No. 1 of 2008, issued under the Banking Act 1959, pertains to Prudential Standard APS 510 Governance, which applies to all authorised deposit-taking institutions and authorised non-operating holding companies. This standard sets out the minimum foundations for good governance within these regulated entities, ensuring they are managed in a sound and prudent manner by a competent Board of Directors. The standard mandates that these Boards make reasonable and impartial business judgements in the best interests of the institution and consider the impact of their decisions on depositors. The determination reflects minor amendments made in response to recent legislative changes, such as the Financial Sector Legislation Amendment (Review of Prudential Decisions) Act 2008 and the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007, ensuring consistency with the updated Banking Act. This includes aligning with whistleblowing provisions and harmonising breach reporting across related financial sector legislation. The scope of this Act is national, affecting all entities subject to APRA’s oversight across Australia, and no significant exclusions or exemptions are noted within this specific determination.
Key Provisions
The Banking (Prudential Standards) Determination No.1 of 2008 primarily involves the revocation and re-making of Prudential Standard APS 510 Governance (APS 510) (section 3). This standard sets out minimum foundations for good governance of authorised deposit-taking institutions and authorised non-operating holding companies, ensuring they are managed by a competent Board of directors that makes prudent business decisions (section 2). The re-making includes minor amendments such as inserting a footnote to align with whistleblowing provisions in the Banking Act and Prudential Standard APS 520 Fit and Proper, preserving transitional relief for auditors, and improving consistency across APRA-regulated industries (section 3).
The Act imposes several obligations on authorised deposit-taking institutions and authorised non-operating holding companies. These include adherence to the governance provisions outlined in APS 510, which mandates that institutions must be governed by a competent Board of directors capable of making sound business judgements (section 2). The institutions must also ensure their governance practices align with the whistleblowing provisions and any other relevant prudential standards (section 3(i)). Additionally, the Act requires these entities to comply with the transitional relief for auditors as stipulated in paragraph 60 of APS 510 (section 3(ii)) and to maintain consistency in their governance practices across different APRA-regulated industries as outlined in paragraph 61 (section 3(iii)).
Under the Banking (Prudential Standards) Determination No.1 of 2008, breaches of the prudential standards, including non-compliance with the governance provisions in APS 510, can lead to various consequences. Although specific penalties are not detailed in the text, the Banking Act generally provides for significant fines and other penalties for breaches of prudential standards. The Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007 also introduced provisions for APRA to exercise discretion to vary prudential requirements for a regulated institution in cases of non-compliance (section 2). Furthermore, the Financial Sector Legislation Amendment (Review of Prudential Decisions) Act 2008 introduced a court-based process for disqualifying individuals from certain roles in authorised deposit-taking institutions, which could be a consequence of failing to adhere to the governance standards set out in APS 510.