EXPLANATORY STATEMENT
Issued by the Australian Prudential Regulation Authority
Life Insurance Act 1995
Prudential Rules Number 46
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.
This Prudential Rule is made for the purposes of subsection 16H(4) of the Act. This subsection provides that a friendly society may maintain a single bank account for money that constitutes assets of 2 or more approved benefit funds if the account is maintained in accordance with the Prudential Rules. A single bank account may only be maintained for 2 or more approved benefit funds and must not include money that constitutes assets of either the management fund or a health insurance benefit fund registered and regulated under the National Health Act 1953 (Cth). (A health insurance benefit fund regulated under the National Health Act 1953 (Cth) is not an approved benefit fund for the purposes of the Act). For the purposes of the Act, the expression ‘bank’ extends to any Authorised Deposit-Taking Institution registered under the Banking Act. A friendly society may, therefore, utilise a single building society or credit union account as the single ‘bank account’ if it is maintained in accordance with this Prudential Rule.
This Prudential Rule specifies various accounting procedures for the maintenance and administration of a single bank account. The overall aim of these procedures is to maintain accountability and transparency between the bank account and the affected approved benefit funds. These procedures are necessary in order that the principles enunciated in subsection 34(3) of the Act are met. That principle is that a friendly society must keep the assets of each approved benefit fund distinct and separate from:
the assets of any other approved benefit fund; and
from any other assets of the friendly society.
The Prudential Rule specifies prescribed time periods within which the transactions of the bank account must be allocated to and reconciled with the benefit fund accounts. In the main, the reconciliation process must be performed at least every 7 days (or at such other time, as permitted by APRA), except where the bank account relates to unitised contracts or where the society conducts a mark to market exercise where more frequent reconciliation may be required. APRA may permit a friendly society to conduct the reconciliation process less frequently than once every 7 days, where APRA is satisfied that the friendly society’s single bank account is relatively stable with insufficient transactions to warrant weekly reconciliation.
Section 45 of the Act provides that a society must not transfer an asset from one approved benefit fund to another approved benefit fund, except in the situation where the asset is transferred at fair value or in accordance with Divisions 3, 4 or 6 of Part 4 of the Act. The operation of the single bank account must not contravene section 45 of the Act, such that one approved benefit fund operates an overdraft. All benefit fund accounts must be in funds at all times. For example, if one approved benefit fund was in funds with the bank account and another was in overdraft, the effect is that an unspecified asset would have been transferred from the latter fund to the former fund and the latter fund would have borrowed cash from the former.