Life Insurance (prudential standard) determination No. 12 of 2010 - Prudential Standard LPS 700 Friendly Society Benefit Funds

Administered by Department of the Treasury

Legislation au F2010L03286 Not in force Legislative Instrument

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Life Insurance (prudential standards) determination

No. 12 of 2010

 

EXPLANATORY STATEMENT

 

Prepared by the Australian Prudential Regulation Authority (APRA)

 

Life Insurance Act 1995, section 230A

 

 

Under subsection 230A(1) of the Life Insurance Act 1995 (Life Act), APRA has the power to determine (in writing) standards in relation to prudential matters to be complied with by all life companies or a specified class of life companies.

 

Life insurance (prudential standards) determination No.12 of 2010 makes Prudential Standard LPS 700 Friendly Society Benefit Funds (LPS 700) to take effect from 1 July 2011. It applies to all life companies that are friendly societies.

 

Background

 

As part of the Government’s response to Rethinking Regulation: the Report of the Taskforce on Reducing Regulatory Burdens on Business, the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007 (SRR Act) made significant changes to the Life Act. Of relevance to this explanatory statement is that the SRR Act requires that prudential rules be phased out by 1 July 2011 in favour of prudential standards. 

 

By way of background, the explanatory memorandum to the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007 (SRR Bill) explains that life company prudential requirements are currently provided for under prudential rules, actuarial standards, prudential standards, the Life Regulations and the Life Act. Prudential rules were the main tool used by the Regulator to prescribe requirements of life insurers under the Life Act, prior to APRA obtaining a prudential standards-making power. These amendments will simplify the Life Act by removing prudential rules from the Act and replace them with principles based prudential standards where necessary.

 

Accordingly, APRA is replacing the remaining prudential rules with prudential standards LPS 700 and Prudential Standard LPS 600 Statutory Funds (to be made by Life Insurance (prudential standards) determination No. 11 of 2010).

 

 

 

Details of the mapping of the prudential rules to the new LPS 700, including the minor changes that have been made as part of the conversion process, are set out in the table below.

 

 

Prudential Standard LPS 700 Friendly Society Benefit Funds

 

Prudential Rules

Changes made – machinery in nature

PR 36

Restructure of Statutory Funds

 

The part of Prudential Rule 36 which is relevant to friendly societies has been included in LPS 700.

Reference to Prudential Rule 47 has been removed as this prudential rule has been revoked.

PR 37

Termination of Statutory Funds

 

A minor wording change has been made to paragraph 2 of Part 1 of the Schedule to Prudential Rule 37 which referred to “restructure” and has been altered to “termination”.

 

The reference to Prudential Rule 47 has been removed as this prudential rule has been revoked.

PR 38

Restructure and Termination of Statutory Funds – Transitional Matters

Prudential Rule 38 will not be incorporated in LPS 700.

 

PR 39

Adequate Adoption of Benefit Fund Rules or Amendments of Approved Benefit Fund Rules

The words “or a class of members as determined by APRA” in the sentence “a special resolution of the members of the friendly society (or a class of members as determined by APRA) in accordance with section 9 of the Corporations Act 2001” have been inserted.  This provision is now aligned with the Life Act (section 16B).

 

PR 40

Approval of Benefit Fund Rules

 Incorporated into LPS 700 without change.

PR 41

Approval of Amendment of Approved Benefit Fund Rules

 

The words “or a class of members as determined by APRA” in the sentence “a special resolution of the members of the friendly society (or a class of members as determined by APRA) in accordance with section 9 of the Corporations Act 2001” have been inserted.  This provision is now aligned with the Life Act (section 16B).

 

PR 42

Approval of Amendment of Approved Benefit Fund Rules as Required by APRA

Incorporated into LPS 700 without change.

PR 43

Approval of Consequential Amendments of Company’s Constitution

Incorporated into LPS 700 without change

 

PR 44

Approval of Consequential Amendments of Company’s Constitution as Required by APRA

Incorporated into LPS 700 without change

PR 45

Joint Investments of Friendly Society Approved Benefit Funds

Incorporated into LPS 700 without change

PR 46

Single Bank Account for Friendly Society Approved Benefit Funds

Incorporated into LPS 700 without change

 

LPS 902

Approved Benefit Fund Requirements

Incorporated into LPS 700 without change

 

 

LPS 700 applies to all life companies that are friendly societies and sets out requirements relating to benefit funds.  It incorporates the requirements contained in Prudential Rules 36 to 46 and LPS 902 Approved Benefit Fund Requirements.  

 

In undertaking the conversion, content that was previously included in the body of the prudential rule that related to making applications to APRA has been converted into forms. These forms are included at the end of each prudential standard.

 

The policy intent of LPS 700 is exactly the same as that contained in the prudential rules. For the most part, LPS 700 uses the same wording as the prudential rules.  This will minimise the impact of these changes on friendly societies.

 

APRA has determined that Life Insurance (prudential standards) determination No.12, be effective from 1 July 2011.

 

Purpose and operation of the Instrument

 

The purpose of this instrument is to revoke the existing prudential rules. This is consistent with the SRR Act which requires that prudential rules be phased out by 1 July 2011 in favour of prudential standards. The purpose of this instrument is also to revoke the existing prudential standard LPS 902 applying to life insurers and replace it with a corresponding standard which incorporates appropriate adjustments.  APRA considered that it would be clearer and more effective to consolidate the necessary changes within a new standard.  For that reason, APRA also decided to revoke and replace the affected standard rather than to amend it.

 

Consultation

 

LPS 700 changes requirements imposed on industry only in form, not in substance.  The change merely moves requirements specified under prudential rules and a prudential standard to a new prudential standard.  Therefore there is no change in the policy being applied to industry. 

 

Regulation Impact Statement

 

A Regulation Impact Statement for the changes described in this explanatory statement was not required. 

Overview

The Life Insurance (prudential standards) determination No. 12 of 2010 was enacted by the Australian Prudential Regulation Authority (APRA) under the authority granted by section 230A of the Life Insurance Act 1995. This determination was introduced to address the requirement stipulated in the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007 for the phasing out of prudential rules in favour of prudential standards by 1 July 2011. This legislative change aimed to streamline and simplify the regulatory framework governing life insurance companies, particularly those that are friendly societies, by consolidating their regulatory requirements into a single, coherent prudential standard. Prudential Standard LPS 700, effective from 1 July 2011, incorporates the provisions previously set out in the revoked Prudential Rules 36 to 46 and LPS 902, ensuring that the regulatory intent remains unchanged while enhancing clarity and effectiveness. This transition reflects the policy objective of reducing regulatory burdens and improving the regulatory environment for the life insurance sector in Australia.

Scope and Application

Life Insurance (prudential standards) determination No. 12 of 2010 applies to all life companies that are classified as friendly societies, setting forth the prudential standards that such entities must adhere to in accordance with the Life Insurance Act 1995. This determination, effective from 1 July 2011, was issued by the Australian Prudential Regulation Authority (APRA) under its authority to establish prudential standards in place of the previous prudential rules. The Prudential Standard LPS 700 Friendly Society Benefit Funds (LPS 700) replaces the relevant prudential rules and standards, incorporating their requirements while streamlining the regulatory framework. The changes are largely cosmetic, designed to simplify the regulatory language without altering the underlying policy intent. This determination is part of a broader initiative to transition from prescriptive prudential rules to more flexible and principles-based standards, as mandated by the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007. The scope of the Act is limited to the prudential requirements for friendly society benefit funds, and it does not introduce new substantive obligations beyond those already established under the previous regulatory framework.

Key Provisions

The main operative sections of the Life Insurance (prudential standards) determination No. 12 of 2010 (LPS 700) are those that outline the prudential standards to be applied to friendly society benefit funds by life insurance companies. These sections, primarily LPS 700, incorporate the requirements previously set out in Prudential Rules 36 to 46 and LPS 902 Approved Benefit Fund Requirements, with some minor adjustments to align with the Life Insurance Act 1995 and the Corporations Act 2001. The purpose of these standards is to ensure that friendly society benefit funds are managed in a manner that aligns with prudential principles and regulatory expectations. Section 230A(1) of the Life Insurance Act 1995 empowers the Australian Prudential Regulation Authority (APRA) to determine these standards. The obligations imposed by LPS 700 on life companies that are friendly societies include ensuring that they maintain their benefit funds in compliance with the standards set out in LPS 700. This includes adhering to the requirements for the restructuring, termination, and transitional matters concerning benefit funds, as well as the approval processes for benefit fund rules, amendments, and consequential amendments to the company’s constitution. Furthermore, life companies must ensure joint investments and the use of a single bank account for approved benefit funds are managed in accordance with the specified standards. These obligations are designed to safeguard the financial stability and integrity of the benefit funds and ensure they meet regulatory standards. Failure to comply with the provisions of LPS 700 may result in various civil and criminal consequences. While the explanatory statement does not detail specific offences or penalties, it is understood that breaches of prudential standards can lead to regulatory action, enforcement actions, and potential financial penalties. APRA has the authority to take measures such as issuing directions, imposing financial penalties, and even revoking the licence of a life company if it is found to be in breach of these standards. The exact penalties would be determined on a case-by-case basis, taking into account the severity and nature of the breach. The instrument is designed to ensure that the regulatory framework governing friendly society benefit funds is clear, consistent, and aligned with modern regulatory standards. By replacing prudential rules with prudential standards, the instrument aims to simplify the regulatory requirements for life companies while maintaining the essential safeguards for the management of benefit funds. This transition was part of the broader regulatory reform aimed at reducing regulatory burdens and improving the clarity and effectiveness of the regulatory framework.

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.