Lloyd’s security trust fund instrument No. 2 of 2017

Administered by Department of the Treasury

Legislation au F2017L00436 Rules In force Legislative Instrument

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Lloyd’s security trust fund instrument No. 2 of 2017

EXPLANATORY STATEMENT

Prepared by the Australian Prudential Regulation Authority (APRA)

Insurance Act 1973, section 70

Under subsection 70(1) of the Insurance Act 1973 (the Act), APRA has the power to make rules that are applicable to the operation of designated security trust funds.

On 12 April 2017, APRA made Lloyd’s security trust fund instrument No. 2 of 2017 (the new instrument) following the sunsetting of Lloyd’s Security Trust Fund Rules No 1 of 2000 made on 9 June 2000 (the old instrument).

The new instrument will take effect upon registration on the Federal Register of Instruments.

  1.    Background

The Act provides for regulation of the operations of Lloyd’s in the Australian insurance market. This includes the capacity of APRA to require Lloyd’s, under a legislative instrument, to have a security trust fund in Australia, into which amounts are deposited to provide for the protection of policy holders in Australia.  APRA also has authority under the Act to make rules specifying certain aspects of the operation of security trust funds. 

The relevant legislative instrument relating to security trust fund rules has lapsed. It is necessary to remake this legislative instrument to ensure that the security trust arrangements continue to work as intended.

Purpose and operation of the instrument

The new instrument sets out rules applicable to designated security trust funds, including rules relating to matters including: assets; liabilities; suspense accounts; records; notices; giving information and review of APRA decisions.

The requirements of the new instrument replicate in substance those of the old instrument.  Minor amendments have been made to update the style and wording of the old instrument to align with current APRA practice.  In consultation with Lloyd’s, APRA has included in the instrument a discretion to approve from time to time the form of the audit certificate to be provided to APRA, so that it can be adjusted to reflect changed conditions.

Where the new instrument incorporates by reference the provisions of an Act or a legislative instrument then, unless the contrary intention appears in the new instrument, these provisions are incorporated as in force from time to time.  Current and historic Australian legislation and legislative instruments referenced in this instrument are available at www.legislation.gov.au.

Consultation

The new instrument applies only to trustees of security trust funds that are established to fulfil obligations imposed on Lloyd’s under any legislative instrument relating to security trust funds. APRA has consulted both with trustees of Lloyd’s security trust funds and with Lloyd’s on the making of the new instrument.

The new instrument will apply on the date of its registration on the Federal Register of Legislation.

4.  Regulation Impact Statement

The Office of Best Practice Regulation has advised that a Regulation Impact Statement is not required for this legislative instrument.

5. Statement of compatibility prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

A Statement of compatibility prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 is provided at Attachment A to this Explanatory Statement.


Attachment A

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Lloyd’s security trust fund instrument No. 2 of 2017 (the Legislative Instrument)

The Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (HRPS Act).

Overview of the Legislative Instrument

The purpose of the Legislative Instrument is to remake Lloyd’s Security Trust Fund Rules No 1 of 2000. The legislative instrument sets out rules specifying certain aspects of the operation of Lloyd’s security trust funds.

Human rights implications

APRA has assessed the Legislative Instrument and is of the view that it does not engage any of the applicable rights or freedoms recognised or declared in the international instruments listed in section 3 of the HRPS Act. Accordingly, in APRA’s assessment, the instrument is compatible with human rights.

Conclusion

The Legislative Instrument is compatible with human rights because it does not raise any human rights issues.

 

Overview

The Lloyd’s Security Trust Fund Instrument No. 2 of 2017 was enacted by the Australian Prudential Regulation Authority (APRA) under section 70 of the Insurance Act 1973. This legislative instrument was introduced to address the need for updated regulations governing the operation of Lloyd’s security trust funds in the Australian insurance market, following the sunsetting of the previous Lloyd’s Security Trust Fund Rules No. 1 of 2000. The primary objective is to ensure that the security trust arrangements continue to function effectively to protect policyholders in Australia. The new instrument replicates the substance of the old instrument with minor amendments to modernise the language and practices, and includes a provision for APRA to approve the form of audit certificates to reflect changing conditions. APRA has consulted with relevant stakeholders, including Lloyd’s and trustees of the security trust funds, in developing this legislative instrument.

Scope and Application

The Lloyd’s Security Trust Fund Instrument No. 2 of 2017, made by the Australian Prudential Regulation Authority (APRA) under the Insurance Act 1973, applies specifically to the trustees of security trust funds established to meet obligations imposed on Lloyd’s in Australia. This legislative instrument was introduced to replace the previously existing Lloyd’s Security Trust Fund Rules No 1 of 2000, which lapsed, ensuring the continuous operation of security trust arrangements. It governs various aspects of the operation of these funds, including assets, liabilities, suspense accounts, records, notices, and information provision to APRA, while incorporating current APRA practices and allowing for adjustments to the audit certificate form. The instrument is designed to be applied by those trustees who are mandated by legislative instruments relating to security trust funds and has been made following consultations with both Lloyd’s and the trustees of these funds. The instrument’s applicability is confined to these trustees and the specific trust funds they manage, and it extends across the Commonwealth of Australia.

Key Provisions

The Lloyd’s security trust fund instrument No. 2 of 2017, issued by the Australian Prudential Regulation Authority (APRA), details the rules applicable to designated security trust funds in Australia. It essentially replicates the provisions of the previously lapsed Lloyd’s Security Trust Fund Rules No 1 of 2000, with minor amendments to update the wording and style to align with current APRA practice. Section 70(1) of the Insurance Act 1973 grants APRA the power to make such rules, ensuring these funds are operational and compliant with regulatory standards (Insurance Act 1973, section 70(1)). The new instrument provides specific rules regarding assets, liabilities, suspense accounts, records, notices, information, and APRA decision reviews. Moreover, APRA retains discretion to approve the form of the audit certificate as necessary, enabling flexibility in response to changing conditions. Entities subject to this instrument, primarily the trustees of Lloyd’s security trust funds, must adhere to the stipulated rules and ensure their funds comply with the outlined regulations. This includes maintaining accurate records, providing necessary information to APRA, and ensuring assets are appropriately managed to protect policyholders. Trustees must also ensure that any changes in the form of the audit certificate are approved by APRA. Furthermore, trustees must ensure that the trust funds are used exclusively for the purposes intended under the relevant legislative instruments, safeguarding policyholder interests in Australia. Failure to comply with the provisions of the new instrument may result in regulatory scrutiny or sanctions from APRA. While specific penalties are not outlined in the document, non-compliance could lead to enforcement actions under the Insurance Act 1973. These actions may include fines, corrective measures, or more severe penalties if the breach significantly impacts policyholder protection or regulatory standards. The seriousness of the breach will determine the exact nature and extent of any penalties imposed. Trustees must, therefore, ensure rigorous adherence to the rules to avoid any potential repercussions.

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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.