Superannuation (prudential standard) determination No. 4 of 2012
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Superannuation Industry (Supervision) Act 1993, section 34C(1)
Under subsection 34C(1) of the Superannuation Industry (Supervision) Act 1993 (the Act), APRA has the power to determine standards (prudential standards), in writing, in relation to prudential matters to be complied with by all RSE licensees of registrable superannuation entities (RSEs).
On 15 November 2012, APRA made Superannuation (prudential standard) determination No. 4 of 2012 under subsection 34C(1) of the Act (the instrument).
The instrument commences upon registration on the Federal Register of Legislative Instruments.[1]
- Background
The Government indicated, in its response to the recommendations of the Super System Review in December 2010, support for the recommendation that APRA be given the power to make prudential standards in respect of superannuation, consistent with APRA’s existing powers in respect of banking and insurance.[2]
In April 2012, APRA released 11 draft prudential standards to implement APRA’s proposed prudential framework for superannuation, incorporating those elements of the Government’s superannuation reforms that come within APRA’s mandate. APRA’s proposals covered prudential requirements common to other APRA-regulated industries as well as superannuation-specific requirements. The proposals also included relocating some current requirements in the Act and Superannuation Industry (Supervision) Regulations 1994 and non-binding guidance material into the new prudential standards, and harmonising the requirements for superannuation with those applying to other APRA-regulated industries to the extent practical.
APRA was granted the ability to make prudential standards in relation to superannuation under the Act by the passage of the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Act 2012 on 8 September 2012.
2. Purpose and operation of the instrument
The purpose of the instrument is to make Prudential Standard SPS 232 Business Continuity Management (SPS 232), which sets out prudential requirements for each RSE licensee to implement a whole-of-business approach to business continuity management that is appropriate to the size, business mix and complexity of its business operations.
The key requirements of SPS 232 are that:
- an RSE licensee must identify, assess and manage potential business continuity risks to ensure that it is able to meet its obligations to beneficiaries and protect the financial position of the RSE licensee, any of its RSEs or connected entities;
- the Board of the RSE licensee must consider business continuity risks and controls as part of its overall risk management framework and approve a Business Continuity Management Policy;
- an RSE licensee must develop and maintain a business continuity plan that documents procedures and information which enable the RSE licensee to manage business disruptions;
- an RSE licensee must review the business continuity plan annually and periodically arrange for its review by the internal audit function or an appropriate external expert; and
- an RSE licensee must notify APRA in the event of certain disruptions.
3. Consultation
In September 2011, APRA released for public consultation a discussion paper, Prudential Standards for Superannuation, which outlined proposals, including those Stronger Super reforms that the Government had recommended APRA implement in prudential standards. A suite of 12 prudential standards, including a standard dealing with business continuity management, was described in the paper. APRA received 41 written submissions in response to this discussion paper, presented the reforms via a wide range of industry forums and held discussions with a variety of industry participants.
In a second consultation round, APRA released a Response to Submissions – Prudential standards for superannuation and a package of 11 draft prudential standards on 27 April 2012. In the response, APRA outlined the significant issues raised in the submissions and APRA’s proposed response to them.
APRA received 38 written submissions in response to the draft prudential standards; again, APRA also presented the reforms at industry forums and met with individual industry participants on the proposed requirements.
No issues of substance were raised with respect to the provisions of draft SPS 232. SPS 232, therefore, contains only minor editing improvements as a result of the feedback received.
4. Regulation Impact Statement
A Regulation Impact Statement is required for the superannuation prudential standards.
5. Statement of compatibility prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
The legislative instrument the subject of this explanatory statement does not engage any of the applicable rights or freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. Accordingly, in APRA’s assessment, this legislative instrument is compatible with human rights.
[1] Paragraphs 33 and 34 of Prudential Standard SPS 232 Business Continuity Management (SPS 232) commence on the date of registration of the instrument on the Federal Register of Legislative Instruments. SPS 232 otherwise commences on 1 July 2013.
[2] Stronger Super, Recommendation 10.2, p. 60.
Overview
Superannuation (prudential standard) determination No. 4 of 2012 was enacted by the Australian Prudential Regulation Authority (APRA) under the Superannuation Industry (Supervision) Act 1993. The instrument, which commenced upon registration on the Federal Register of Legislative Instruments, was introduced to address the need for a comprehensive prudential framework governing the superannuation industry in Australia. APRA, empowered by the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Act 2012, was tasked with developing these standards to ensure the stability and resilience of the superannuation sector. This legislative instrument aims to implement the Government’s response to the Super System Review, aligning superannuation prudential requirements with those of other APRA-regulated industries and incorporating elements of the Stronger Super reforms. APRA undertook extensive consultation with industry stakeholders, resulting in the finalisation of the Prudential Standard SPS 232 Business Continuity Management, which mandates RSE licensees to adopt robust business continuity management practices to safeguard their operations and beneficiaries.
Scope and Application
The Superannuation (prudential standard) determination No. 4 of 2012 is a legislative instrument made under the Superannuation Industry (Supervision) Act 1993, providing the Australian Prudential Regulation Authority (APRA) with the authority to establish prudential standards for RSE licensees of registrable superannuation entities (RSEs). The instrument establishes Prudential Standard SPS 232 Business Continuity Management (SPS 232), which sets out the requirements for RSE licensees to implement a comprehensive approach to business continuity management suitable to their business size, mix, and complexity. The standard requires RSE licensees to identify, assess, and manage potential business continuity risks to meet their obligations to beneficiaries and safeguard the financial health of the RSE licensee, its RSEs, or connected entities. The Board of the RSE licensee must also consider business continuity risks and controls as part of its overall risk management framework and approve a Business Continuity Management Policy. Additionally, an RSE licensee must develop and maintain a business continuity plan, review it annually, and notify APRA of certain disruptions. The instrument applies to RSE licensees across Australia, with no stated exclusions or exemptions. The instrument is intended to ensure that RSE licensees are prepared to manage business disruptions and protect the financial well-being of their beneficiaries.
Key Provisions
The Superannuation (prudential standard) determination No. 4 of 2012 sets out specific prudential requirements for all Registered Superannuation Entities (RSEs) licensees under the Superannuation Industry (Supervision) Act 1993. This determination, specifically Prudential Standard SPS 232, mandates that RSE licensees adopt a comprehensive business continuity management strategy. This approach must be tailored to the size, business mix, and complexity of their operations (section 2). The Board of the RSE licensee is required to integrate business continuity risks and controls into their overall risk management framework, and approve a formal Business Continuity Management Policy (section 2). Additionally, RSE licensees must develop and maintain a business continuity plan, which includes procedures and information necessary to manage business disruptions, and review this plan annually or as required by internal audit or external experts (section 2). RSE licensees are also obligated to notify the Australian Prudential Regulation Authority (APRA) in the event of certain disruptions (section 2).
RSE licensees must ensure that they identify, assess, and manage potential business continuity risks to meet their obligations to beneficiaries and protect their financial position (section 2). This includes the requirement for the Board to consider these risks and controls as part of the broader risk management framework and to approve a comprehensive Business Continuity Management Policy (section 2). Furthermore, RSE licensees are required to develop and maintain a business continuity plan that details the procedures and information necessary to manage any business disruptions (section 2). The plan must be reviewed annually and, where necessary, reviewed by internal audit or an appropriate external expert (section 2). In addition to these requirements, RSE licensees must notify APRA in the event of certain disruptions (section 2).
The determination imposes several obligations on RSE licensees. Firstly, they must identify, assess, and manage potential business continuity risks to ensure they can meet their obligations to beneficiaries and protect their financial position, the RSE, or connected entities (section 2). The Board of the RSE licensee is required to consider these risks and controls as part of the overall risk management framework and must approve a formal Business Continuity Management Policy (section 2). Additionally, RSE licensees must develop and maintain a business continuity plan, which includes detailed procedures and information to manage disruptions, and review this plan annually or as required by internal audit or an appropriate external expert (section 2). RSE licensees are also obligated to notify APRA in the event of certain disruptions (section 2).
Breaches of the requirements under this determination may result in civil and criminal penalties. While the specific penalties are not detailed in the explanatory statement, breaches of prudential standards generally can lead to substantial fines and, in severe cases, criminal charges for directors and officers of the RSE licensee. The determination, however, does not specify maximum penalties, and these would typically be determined by the courts based on the nature and severity of the breach. Non-compliance can also result in APRA taking regulatory action, including imposing additional requirements, restrictions, or sanctions on the RSE licensee.