Financial Sector Reform (Amendments and Transitional Provisions) Regulations 1999
VARIATION OF APRA TRANSITIONAL PRUDENTIAL STANDARDS
I, Graeme John Thompson, Chief Executive Officer (“CEO”) and a delegate of the Australian Prudential Regulation Authority (“APRA”), under paragraph 16(1)(a) of the Financial Sector Reform (Amendments and Transitional Provisions) Regulations 1999 (the “Regulations”) and subsection 33(3) of the Acts Interpretation Act 1901:
- REVOKE the Variation of APRA Transitional Prudential Standards made by me dated 8 September 2000; and
- VARY the APRA transitional prudential standards in the manner set out in the Schedule.
This instrument comes into force on 1 July 2002.
Dated 27 May 2002
[signed]
G J Thompson
CEO
[Note 1: The APRA transitional prudential standards (preserved by regulation 12 of the Regulations) are listed in Schedule 1 to the Regulations.
Note 2: In this instrument, “Financial Institutions Code” has the meaning given by item 1 of Schedule 8 to the Act.]
SCHEDULE
- Book 3 – all omitted, except the parts listed below:
(a) Prudential Note 3.1:
- Under “Specific Risks” part (v) Data Risk, the first paragraph is retained;
- Under “Specific Risks” part (vi) Operations Risk, the first, sixth, seventh and eighth paragraphs are retained;
(b) Prudential Standard 3.1.5, Data Risk, paragraphs 3.1.5.a and 3.1.5.c are retained; and
(c) Prudential Standard 3.1.6, Operations Risks, paragraph 3.1.6.a is retained.
2. Book 4 – all omitted, except the parts listed below:
(a) Prudential Note 4.1:
- Under “Specific Risks” part (v) Data Risk, the first paragraph is retained;
- Under “Specific Risks” part (vi) Operations Risk, the first, sixth, seventh and eighth paragraphs are retained;
(b) Prudential Standard 4.1.5, Data Risk, paragraphs 4.1.5.a and 4.1.5.c are retained; and
(c) Prudential Standard 4.1.6, Operations Risks, paragraph 4.1.6.a is retained.
3. Book 5 – all omitted, except the parts listed below:
(a) Prudential Note 5.1:
- Under “Specific Risks” part 5.1.4, Transaction and Technology Risk, the first and second paragraphs are retained;
- Under “Specific Risks” part 5.1.5, Operations Risk, the first, and sixth-twelfth paragraphs (inclusive) are retained;
(b) Prudential Standard 5.1.4, Transaction and Technology Risk, paragraphs 5.1.4.a, 5.1.4.b, 5.1.4.d and 5.1.4.e are retained;
(c) Prudential Standard 5.1.5, Operations Risks, paragraphs 5.1.5.a, 5.1.5.b and 5.1.5.c are retained;
(d) Prudential Note 5.4C, Directors, is retained; and
(e) Prudential Standard 5.4.3, Composition of the Boards of Directors of SSPs, is retained.
4. Subsections 245(1) – (3) of a Financial Institutions Code, preserved under item 5 of Schedule 1 of the Regulations are omitted.
5. Any “urgent prudential standards”, preserved under item 6 of Schedule 1 of the Regulations are omitted.
6. Any “modifications of transitional prudential standards”, preserved under item 7 of Schedule 1 of the Regulations, are omitted.
Overview
The Financial Sector Reform (Amendments and Transitional Provisions) Regulations 1999 were enacted to provide for transitional prudential standards and other measures to ensure the stability and integrity of Australia's financial sector following significant reforms. This legislative instrument was introduced to address the need for a smooth transition to new regulatory requirements and to maintain confidence in the financial system. It was enacted by the Parliament of Australia and is administered by the Australian Prudential Regulation Authority (APRA). The primary policy objective of the Regulations is to ensure that financial institutions can effectively manage risks and comply with new standards as they are phased in, thereby maintaining financial stability and consumer protection.
Scope and Application
The Financial Sector Reform (Amendments and Transitional Provisions) Regulations 1999, as varied by this legislative instrument, primarily applies to entities within the financial sector, including banks, credit unions, and insurance companies, subject to the purview of the Australian Prudential Regulation Authority (APRA). These regulations, administered by the CEO of APRA, aim to modify the transitional prudential standards, ensuring that financial entities adhere to updated regulatory requirements concerning data risk, operations risk, and transaction and technology risk. The instrument revokes the previously established variation of APRA transitional prudential standards dated 8 September 2000 and introduces new provisions effective from 1 July 2002. The instrument retains specific sections of Prudential Notes and Standards pertaining to data risk, operations risk, and transaction and technology risk, while omitting others, such as urgent prudential standards and modifications of transitional prudential standards, as preserved by the Regulations.
Key Provisions
The Financial Sector Reform (Amendments and Transitional Provisions) Regulations 1999, as varied by the CEO of APRA, revokes the Variation of APRA Transitional Prudential Standards made on 8 September 2000 and varies the APRA transitional prudential standards according to the provisions in the Schedule. These changes are effective from 1 July 2002. The key operative sections of the Regulations revolve around the retention and omission of specific parts of the APRA transitional prudential standards. For example, under Book 3 of the Prudential Notes, only certain paragraphs related to "Data Risk" and "Operations Risk" are retained (section (a)). Similarly, under the Prudential Standards, only specific paragraphs concerning "Data Risk" and "Operations Risks" are kept (section (b)). This selective retention approach is mirrored in Books 4 and 5, where specific paragraphs are either retained or omitted (sections (c) and (d)). Furthermore, subsections 245(1)-(3) of a Financial Institutions Code, as well as any "urgent prudential standards" and "modifications of transitional prudential standards", are omitted (sections (e), (f), and (g)).
The Regulations impose specific obligations on the parties or entities they govern. They require adherence to the retained sections of the APRA transitional prudential standards, ensuring that financial institutions address the risks specified in these sections. For instance, financial institutions must focus on "Data Risk" and "Operations Risk" as outlined in the retained paragraphs. Additionally, they must comply with the retained Prudential Standards related to "Transaction and Technology Risk" and "Operations Risks". The CEO of APRA retains the authority to modify these standards, as evidenced by the revocation of the previous variation and the introduction of new variations. These changes are designed to ensure that financial institutions maintain appropriate prudential standards, particularly in areas identified as high risk.
Failure to comply with the amended APRA transitional prudential standards may result in various consequences. While the specific penalties are not detailed in the Regulations, breaches of prudential standards generally attract civil or criminal penalties under related legislation. Civil penalties can include fines, while criminal penalties may involve imprisonment or substantial fines, depending on the severity and intent of the breach. Financial institutions are expected to take the amended standards seriously and implement necessary measures to avoid non-compliance. The enforcement of these standards is crucial to maintaining the stability and integrity of the financial sector.