Financial Sector (Collection of Data) (reporting standard) determinations
Nos. 17 to 28 of 2009
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Financial Sector (Collection of Data) Act 2001, paragraph 13(1)(a) and section 15
Acts Interpretation Act 1901, subsection 33(3)
Under paragraph 13(1)(a) of the Financial Sector (Collection of Data) Act 2001 (the Act), APRA may, by writing, determine reporting standards with which financial sector entities must comply. Such standards relate to reporting financial or accounting data and other information regarding the business or activities of the entities. Section 15 of the Act gives APRA power to make a formal declaration of the date when reporting standards begin to apply. Subsection 33(3) of the Acts Interpretation Act 1901 provides that where an Act confers a power to issue an instrument the power shall, unless the contrary intention appears, be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to revoke any such instrument.
Financial Sector (Collection of Data) (reporting standard) determinations Nos. 17 to 28 of 2009 determine new reporting standards applying to a Level 2 insurance group (as defined in Prudential Standard GPS 001 Definitions) regulated by APRA.
Under subsection 15(1) of the Act, APRA has determined that Financial Sector (Collection of Data) (reporting standard) determinations Nos. 17 to 28 of 2009 be effective from the date of registration on the Federal Register of Legislative Instruments.
- Background
This Explanatory Statement explains the introduction of the reporting standards that will apply to Level 2 insurance groups.
Prior to 31 March 2009, APRA has relied on supervising individual APRA-authorised general insurers (Level 1 insurers) on a stand-alone basis. This approach was inadequate for APRA to monitor the contagion risk that insurers were exposed to if they operated as part of a corporate group. Nor did APRA have the power to monitor capital adequacy at an insurance group level. The HIH Royal Commission recommended APRA develop a framework for the effective supervision of corporate groups that include general insurers.
In response, APRA has developed an additional tier of supervision that applies to consolidated general insurance groups (Level 2 insurance groups). Level 2 insurance groups comprise of a parent entity that is either an APRA-authorised insurer or an APRA-authorised NOHC (Non-operating Holding Company).
The prudential standards for level 2 insurance groups became effective on 31 March 2009. APRA needs to collect data in order to monitor the financial health of Level 2 insurance groups and ensure that Level 2 insurance groups comply with the capital requirements in the Level 2 prudential standards. The reporting standards are therefore required to support APRA’s supervision of Level 2 insurance groups.
There are twelve reporting standards that will apply to Level 2 insurance groups and will require groups to submit data to APRA on a semi-annual basis. The reporting standards include reporting instructions and forms.
2. Purpose of the instrument
The purpose of each instrument is to determine new reporting standards that will apply to Level 2 insurance groups. The reporting standards require groups to submit data to APRA on a semi-annual basis in order for APRA to assess the financial performance and the capital adequacy of insurance groups.
3. Operation of the instruments
Financial Sector (Collection of Data) (reporting standard) determinations Nos. 17 to 28 of 2009 determine new general insurance reporting standards for the prudential supervision of Level 2 insurance groups.
Each new reporting standard comprises:
- the body of the reporting standard itself (which includes details about when returns must be lodged with APRA);
- one reporting form which must be completed by the parent entity of each Level 2 insurance group covered by the reporting standard; and
- a set of detailed technical instructions regarding completion of the form.
Each of the new reporting standards operate in relation to reporting periods commencing on or after the effective date of the Level 2 prudential standards for each group. Subject to any transitional arrangements that may be in place for individual groups, returns in relation to the first reporting period are not required to be lodged with APRA until 30 September 2009.
4. Consultation
In developing the Level 2 reporting framework, APRA has consulted over the last two years on several occasions with the insurance industry. In April 2007, APRA released early drafts of the reporting forms to industry through the Insurance Council of Australia. Since then APRA has liaised with industry through:
- a discussion paper on ‘Consolidated group reporting for general insurers’, in August 2007;
- a response paper ‘Prudential supervision of general insurance groups’, in April 2008;
- an informal consultation process in September 2008; and
- a consultation and review process in February and July 2009.
5. Regulation Impact Statement
A Regulation Impact Statement (RIS) was prepared and submitted to the Office of Best Practice Regulation (OBPR) prior to the release of the Level 2 prudential standards in December 2008. This RIS addressed the impacts to industry from both the prudential and reporting requirements. As a result, a separate regulation impact statement for these determinations was considered unnecessary by the OBPR.
Overview
The Financial Sector (Collection of Data) (reporting standard) determinations Nos. 17 to 28 of 2009 were enacted to address the inadequacy of the previous supervisory approach that focused on individual APRA-authorised general insurers. Prior to 31 March 2009, the Australian Prudential Regulation Authority (APRA) supervised these insurers on a stand-alone basis, which was insufficient for monitoring the contagion risk that insurers faced when operating within a corporate group. Additionally, APRA lacked the authority to monitor capital adequacy at an insurance group level. In response to the recommendations from the HIH Royal Commission, APRA developed a supplementary tier of supervision for consolidated general insurance groups, referred to as Level 2 insurance groups. These groups consist of a parent entity that is either an APRA-authorised insurer or an APRA-authorised Non-Operating Holding Company (NOHC). The prudential standards for Level 2 insurance groups became effective on 31 March 2009. To monitor the financial health of these groups and ensure compliance with capital requirements, APRA introduced new reporting standards. These standards mandate that Level 2 insurance groups submit data to APRA on a semi-annual basis, enabling the assessment of their financial performance and capital adequacy. The determinations were registered on the Federal Register of Legislative Instruments, aligning with the provisions of the Financial Sector (Collection of Data) Act 2001 and the Acts Interpretation Act 1901.
Scope and Application
The Financial Sector (Collection of Data) (reporting standard) determinations Nos. 17 to 28 of 2009 establish new reporting standards that apply specifically to Level 2 insurance groups regulated by the Australian Prudential Regulation Authority (APRA) under the Financial Sector (Collection of Data) Act 2001. These determinations target entities that constitute Level 2 insurance groups, which include a parent entity that is an APRA-authorised insurer or an APRA-authorised Non-Operating Holding Company (NOHC). These groups are subject to additional prudential standards to ensure effective supervision and to mitigate contagion risk within corporate groups. The reporting standards mandate that these groups submit financial and accounting data on a semi-annual basis, enabling APRA to monitor the financial health and capital adequacy of the insurance groups. The determinations, effective from their registration on the Federal Register of Legislative Instruments, encompass detailed reporting forms and instructions to facilitate compliance and data collection. While the primary jurisdiction of these determinations is national, their application is contingent upon the specific regulatory requirements and transitional arrangements for individual groups.
Key Provisions
The main operative sections of the Financial Sector (Collection of Data) (reporting standard) determinations Nos. 17 to 28 of 2009 include sections that specify the reporting standards for Level 2 insurance groups, as outlined in paragraphs 13(1)(a) and 15 of the Financial Sector (Collection of Data) Act 2001 (the Act). These sections mandate that the Australian Prudential Regulation Authority (APRA) can determine reporting standards to which financial sector entities must comply, and these standards must pertain to financial or accounting data and other information regarding the business or activities of the entities. Section 15 of the Act further empowers APRA to formally declare the effective date of these reporting standards. The determinations, which are set to be effective from the date of their registration on the Federal Register of Legislative Instruments, apply to Level 2 insurance groups regulated by APRA.
The obligations imposed by the Act on the parties it governs include the requirement for Level 2 insurance groups to submit data to APRA on a semi-annual basis. This data submission is crucial for APRA to monitor the financial health of these insurance groups and to ensure compliance with capital requirements stipulated in the Level 2 prudential standards. The reporting standards encompass detailed reporting instructions and forms that must be completed by the parent entity of each Level 2 insurance group. These new reporting standards apply to reporting periods commencing on or after the effective date of the Level 2 prudential standards, with the first reporting period returns not due until 30 September 2009, subject to any transitional arrangements.
The Act also outlines the consequences for non-compliance with the stipulated reporting standards. Breach of these obligations could lead to civil or criminal consequences, although the specific penalties are not detailed within the explanatory statement. The potential penalties could include fines or other enforcement actions as prescribed under relevant legislation. The Act, through subsection 33(3) of the Acts Interpretation Act 1901, also implies that APRA has the authority to revoke any such instrument if necessary, ensuring that the regulatory framework remains effective and responsive to the needs of financial supervision.
In summary, the Financial Sector (Collection of Data) (reporting standard) determinations Nos. 17 to 28 of 2009 establish comprehensive reporting standards for Level 2 insurance groups, mandating regular data submissions to APRA. These standards are essential for effective prudential supervision and capital adequacy monitoring. Failure to comply with these obligations may result in civil or criminal penalties, and APRA retains the power to revoke the determinations if deemed necessary.