APRA releases new “fit and proper” prudential standards for ADI’s , life companies and general insurers

The Australian Prudential Regulation Authority (APRA) has released three new fit and proper standards: APS 520 Fit and Proper (for authorised deposit-taking institutions), LPS 520 Fit and Proper (for life companies) and GPS 520 Fit and Proper (for general insurers). The standards come into effect from 1 October 2006.

The framework consists of principles-based prudential standards and separate prudential practice guides, which provide non-binding guidance on meeting these new standards and on prudent practices in fit and proper matters.

Prudential Practice Guide APG 520 Fit And Proper (ADI’s)
General Insurance Prudential Practice Guides
Life Insurance Prudential Practice Guides

The new standards are aimed at enhancing the calibre of those charged with running APRA-regulated institutions. The standards establish a minimum benchmark for acceptable practice in the appointment of Board directors, senior management, and certain auditors and actuaries. Key elements of the new standards are:

* regulated institutions must have their own policies, and take all prudent steps, to ensure their responsible persons are fit and proper;
* the fitness and propriety of a responsible person must generally be assessed prior to initial appointment and reassessed annually; and
* additional criteria must be met for the appointment of certain auditors and actuaries.

The standards involve only minimal reporting requirements.

In developing its framework, APRA has harmonised its requirements with ASIC’s fit and proper regime for responsible officers, where possible. The prudential practice guides confirm that in assessing a responsible person, an institution can give weight to another regulator’s assessment, or information collected for that assessment, where it is current and relevant.

APRA itself has powers to remove a responsible person who it considers is not fit and proper. “APRA will not be vetting appointments and we see our powers as reserve powers – to be used when an institution is unable or unwilling to take action itself”, APRA Chair Dr Laker said.

In February under its existing powers APRA announced the disqualification of a former credit union director from acting as a director or senior manager of an authorised deposit-taking institution (ADI) or the Australian operations of a foreign ADI.

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