Lloyd’s security trust fund instrument No. 1 of 2017

Overview

The Lloyd’s Security Trust Fund Instrument No. 1 of 2017, enacted by the Australian Prudential Regulation Authority (APRA) under the authority granted by the Insurance Act 1973, addresses the need to update and replace the outdated Lloyd’s Security Trust Fund Determination No. 1 of 2000, which lapsed on 9 June 2000. The instrument was made to ensure the continuity of security trust fund arrangements that protect Australian policyholders. The primary objective of this instrument is to re-establish the regulatory framework that mandates Lloyd’s to maintain a security trust fund in Australia, ensuring that funds are available for the payment of insurance liabilities, and that any changes to the trust deed or trustee are subject to APRA approval. This legislative instrument incorporates minor amendments to align with current APRA practices and includes provisions for the approval of audit certificates and the potential termination of the security trust fund under certain conditions.

Scope and Application

The Lloyd’s Security Trust Fund Instrument No. 1 of 2017 applies exclusively to Lloyd’s, ensuring the continuation of the regulatory framework governing the maintenance of a security trust fund within Australia. This legislative instrument is designed to maintain the protection of policyholders in Australia by mandating that Lloyd’s must deposit amounts into a trust fund for the settlement of insurance liabilities. The instrument, issued by the Australian Prudential Regulation Authority (APRA) under the Insurance Act 1973, replicates the requirements of the previously lapsed Lloyd’s Security Trust Fund Determination No 1 of 2000, with minor updates to align with current APRA practice. It also incorporates provisions from the Insurance Companies Act 1982 of the United Kingdom and relevant Australian legislation as in force at specific times. The instrument provides APRA with the discretion to approve changes to the form of audit certificates and to terminate a security trust fund under appropriate conditions, subject to APRA’s approval. The instrument, which takes effect upon registration on the Federal Register of Legislation, does not extend beyond Lloyd’s and does not require a Regulation Impact Statement.

Key Provisions

The Lloyd’s Security Trust Fund Instrument No. 1 of 2017 (the Instrument) sets out the requirements for Lloyd’s to maintain a security trust fund in Australia, as specified by the Australian Prudential Regulation Authority (APRA) under the Insurance Act 1973 (the Act) (section 68(1)). The Instrument was made to replace the Lloyd’s Security Trust Fund Determination No 1 of 2000, which lapsed on 9 June 2000, and will come into effect upon its registration on the Federal Register of Legislation. It details the obligations for Lloyd’s regarding the maintenance of a security trust fund to protect policyholders in Australia. The requirements under the Instrument are substantially the same as those of the previous Determination, with minor updates to the style and wording to align with current APRA practices. The Instrument also allows APRA to approve the form of the audit certificate to be provided and the termination of a security trust fund if deemed appropriate. The obligations under the Instrument for Lloyd’s are comprehensive and involve several key provisions. Firstly, the Instrument requires that a trust deed for the security trust fund must provide for payment in Australia for insurance liabilities secured by the fund (section 2). Secondly, any trust deed for a security trust fund, or alterations to such a trust deed, must be approved by APRA (section 2). Additionally, any trustee of a security trust fund must also be approved by APRA (section 2). Furthermore, the Instrument incorporates by reference the provisions of current and historic Australian legislation and legislative instruments, which are available at www.legislation.gov.au. It also references the Insurance Companies Act 1982 of the United Kingdom as in force on 3 September 2016, which is accessible at www.legislation.gov.uk. The Instrument imposes several requirements and obligations on Lloyd’s, primarily to ensure the security and protection of policyholders in Australia. Lloyd’s must ensure that the security trust fund is maintained in accordance with the Instrument's provisions, including the requirement for APRA’s approval of the trust deed and the trustee. Any changes to the trust deed must also be approved by APRA, and any changes to the trustee must be similarly approved. These obligations are essential to maintain the integrity and effectiveness of the security trust fund in safeguarding policyholders' interests. Failure to comply with the provisions of the Instrument can result in significant consequences. Although the Instrument itself does not specify detailed penalties for non-compliance, breaches of the Insurance Act 1973 (the Act) or any related regulations can lead to civil or criminal penalties. Under the Act, APRA has the authority to impose fines, including substantial financial penalties for non-compliance with regulatory requirements. Additionally, any failure to maintain the security trust fund as required can result in legal action against Lloyd’s, potentially leading to further penalties or enforcement actions by APRA. It is crucial for Lloyd’s to adhere to the requirements to avoid these potential legal and financial repercussions.