Life Insurance (prudential standard) determination No. 1 of 2007: Prudential Standard LPS 231 Outsourcing
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Subsection 230A(5) of the Life Insurance Act 1995 (‘the Act’)
Under subsection 230A(5) of the Act, APRA may, in writing, vary a prudential standard (prudential standard) made in relation to prudential matters to be complied with by all life insurance companies and friendly societies.
- Background
Prudential Standard LPS 231 Outsourcing (LPS 231) applies to all life insurance companies (including friendly societies) and was made by Life Insurance (prudential standard) determination No. 3 of 2006. LPS 231 aims to ensure that all outsourcing arrangements entered into by a life company are subject to appropriate due diligence, approval and ongoing monitoring.
Footnote 3 in LPS 231, which relates to paragraph 14 of LPS 231, specifies APRA’s expectation that (even though life companies are not, at present, subject to formal prudential requirements with regard to their risk management) a life company’s risk management framework will cover the risks associated with outsourcing a material business activity.
APRA intends to determine a number of prudential standards, including LPS 220 Risk Management (LPS 220), to take effect from 1 January 2008. LPS 220 is intended to ensure that life companies have systems in place to prudently manage the risks arising in their business.
As a result of the introduction of LPS 220, LPS 231 footnote 3 will no longer be required.
2. Purpose of the instrument
Life insurance (prudential standard) determination No. 1 of 2007 (the instrument) varies LPS 231.
3. Operation of the instrument
The instrument deletes footnote 3 from LPS 231. This deletion will not materially affect the operation of LPS 231.
4. Consultation
APRA did not consider industry consultation to be necessary for the purposes of the instrument. The variation is mechanistic and routine in nature, and no new requirements have been imposed by APRA.
APRA undertook public consultation on the broader proposal to introduce LPS 220, including the release of a discussion paper and discussions with industry representative. Thirteen submissions were received from industry associations, life companies, professional services firms and other interested parties.