EXPLANATORY STATEMENT
Issued by the Australian Prudential Regulation Authority
Life Insurance Act 1995
Prudential Rules Number 43
Subsection 252(1) of the Life Insurance Act 1995 (the “Act”) provides that the Australian Prudential Regulation Authority (“APRA”) may, in writing, make rules prescribing all matters required or permitted by the Act to be prescribed by Prudential Rules. Subsection 252(2) of the Act provides that such Prudential Rules are disallowable instruments for the purposes of section 46A of the Acts Interpretation Act 1901.
Consistent with the processes established to approve the benefit fund rules, section 16U of the Act enables APRA to approve amendments to a company’s constitution that are consequential upon the approval or amendment of its benefit fund rules. This enables a friendly society to undertake a single process to amend its benefit fund rules and related parts of its constitution – rather than having to also pursue the Corporations Law requirements to amend its constitution in relation to minor consequential matters.
Section 16U of the Act provides for a friendly society to seek APRA’s approval of consequential amendments as part of the same application for approval of benefit fund rules (under section 16L) or amendments to the approved benefit fund rules (under section 16Q). The application for consequential amendments must be in accordance with this Prudential Rule. APRA may approve the consequential amendments if satisfied that the amendments are consequential on the proposed benefit fund rules or the amendment of approved benefit fund rules and do not also deal with other matters, as prescribed by section 16U(3). APRA may consult the Australian Securities and Investments Commission (ASIC) in considering these matters.
Section 16U of the Act will only be used by APRA to approve minor changes to a company’s constitution that flow from new or amended benefit fund rules. For example, the approval process may be appropriate where the addition of a new benefit fund to the company’s constitution requires additional cross-references to other parts of the constitution.
The company will be guilty of an offence if APRA has approved consequential amendments to the company’s constitution and it fails to comply with this Prudential Rule which requires the company to notify its members of the consequential amendments. Failure to notify members attracts a maximum penalty of 50 penalty units.
If APRA approves consequential amendments of a company’s constitution under section 16U of the Act, the company will need to lodge a copy of the consequential amendment with ASIC (in accordance with section 16W of the Act). Section 16X of the Act provides that consequential amendments approved by APRA under section 16U come into force on the day lodged with ASIC or a later day if specified in the amendments. Section 16X of the Act ensures that a consequential amendment of a company’s constitution which has been approved by APRA under subsection 16U(3) will take effect as an amendment of the constitution of the company.
Overview
The Life Insurance Act 1995, enacted by the Commonwealth Parliament, provides the framework for the regulation of life insurance businesses in Australia. This Act was introduced to address the need for a robust regulatory system to protect policyholders and ensure the financial stability of life insurance companies. Under the authority granted by Subsection 252(1) of the Act, the Australian Prudential Regulation Authority (APRA) has the power to create Prudential Rules to govern various aspects of the life insurance industry. Specifically, Section 16U of the Act allows APRA to approve minor consequential amendments to a company's constitution when these changes are directly related to the approval or amendment of its benefit fund rules. This provision streamlines the amendment process for friendly societies, enabling them to adjust their benefit fund rules and related constitutional matters within a single application process, rather than navigating separate requirements under the Corporations Law. The policy objective here is to facilitate efficient and effective governance while maintaining stringent oversight to safeguard the interests of policyholders.
Scope and Application
The Life Insurance Act 1995, specifically through Prudential Rules Number 43, empowers the Australian Prudential Regulation Authority (APRA) to approve consequential amendments to a company’s constitution, which are directly linked to the approval or amendment of its benefit fund rules. This process is applicable to friendly societies seeking to streamline the amendment of their benefit fund rules and related constitutional matters. APRA's approval under section 16U is limited to minor changes that are strictly consequential on the benefit fund rules, ensuring the amendments do not address other unrelated matters. The Act mandates that companies must notify their members of these consequential amendments, with failure to do so resulting in an offence and a penalty of up to 50 penalty units. Once APRA approves the amendments, the company must lodge a copy with the Australian Securities and Investments Commission (ASIC), as per section 16W, and the amendments will come into force on the day they are lodged with ASIC or a later specified date, as outlined in section 16X. This mechanism allows for efficient updates to company constitutions in alignment with benefit fund rules, subject to the oversight and approval of APRA.
Key Provisions
The Life Insurance Act 1995, through Prudential Rules Number 43, grants the Australian Prudential Regulation Authority (APRA) the authority to create rules that are necessary or allowed by the Act. These rules, referred to as Prudential Rules, must be made in writing and can cover a broad range of matters as stipulated by section 252(1) of the Act. It is important to note that these rules can be disallowed under section 46A of the Acts Interpretation Act 1901, as mentioned in subsection 252(2). Section 16U of the Act facilitates a streamlined process for friendly societies to amend their benefit fund rules and related parts of their constitution without the need to comply with additional Corporations Law requirements for minor consequential changes.
Under section 16U, friendly societies can apply to APRA for approval of consequential amendments to their constitution. This process allows a society to make changes to its constitution that are directly related to its benefit fund rules, rather than having to navigate separate constitutional amendment procedures. APRA can approve these amendments if they are directly consequential on the proposed or amended benefit fund rules and do not cover other unrelated matters, as specified in section 16U(3). APRA also has the discretion to consult with the Australian Securities and Investments Commission (ASIC) when considering these applications. It is worth noting that this section is intended for minor changes, such as those needed to include new benefit funds in the constitution.
The Act imposes specific obligations on companies that have their constitutions amended consequentially under section 16U. Firstly, companies must ensure that they notify their members of any consequential amendments approved by APRA. Failure to do so constitutes an offence, and the company can face a penalty of up to 50 penalty units, as stipulated by the Act. Secondly, once APRA approves consequential amendments, the company must lodge a copy of these amendments with ASIC in accordance with section 16W of the Act. Section 16X then ensures that these approved consequential amendments become effective as part of the company's constitution either on the day they are lodged with ASIC or on a later date specified within the amendments. This process ensures that the changes are properly integrated into the company's governing documents.