Banking, Insurance, Life Insurance, Health Insurance and Superannuation (prudential standard) determination No. 4 of 2023
Prudential Standard CPS 900 Resolution Planning
Banking Act 1959
Insurance Act 1973
Life Insurance Act 1995
Private Health Insurance (Prudential Supervision) Act 2015
Superannuation Industry (Supervision) Act 1993
I, Clare Gibney, a delegate of APRA:
(a) under subsection 11AF(1) of the Banking Act 1959 DETERMINE the prudential standard, which applies to all ADIs and authorised banking NOHCs;
(b) under subsection 32(1) of the Insurance Act 1973 DETERMINE the prudential standard, which applies to all general insurers and authorised insurance NOHCs, and subsidiaries of general insurers or authorised insurance NOHCs where those subsidiaries are parent entities of Level 2 insurance groups;
(c) under subsection 230A(1) of the Life Insurance Act 1995 DETERMINE the prudential standard, which applies to all life companies, including friendly societies, and registered life NOHCs;
(d) under subsection 92(1) of the Private Health Insurance (Prudential Supervision) Act 2015 DETERMINE the prudential standard, which applies to all private health insurers; and
(e) under subsection 34C(1) of the Superannuation Industry (Supervision) Act 1993 DETERMINE the prudential standard, which applies to all RSE licensees.
This instrument commences on 1 January 2024.
Dated: 10 October 2023
Clare Gibney
Executive Director, Policy and Advice Division
APRA
Interpretation
In this Determination:
ADI has the meaning given in section 5 of the Banking Act 1959.
APRA means the Australian Prudential Regulation Authority.
authorised banking NOHC has the meaning given to the expression authorised NOHC in section 5 of the Banking Act 1959.
authorised insurance NOHC has the meaning given to the expression authorised NOHC in subsection 3(1) of the Insurance Act 1973.
friendly society has the meaning given in section 16C of the Life Insurance Act 1995.
general insurer has the meaning given in section 11 of the Insurance Act 1973.
Level 2 insurance group has the meaning given in Prudential Standard GPS 001 Definitions.
life company has the meaning given in the Schedule to the Life Insurance Act 1995.
parent entity has the meaning given in Prudential Standard GPS 001 Definitions.
private health insurer has the meaning given in section 4 of the Private Health Insurance (Prudential Supervision) Act 2015.
registered life NOHC has the meaning given to the expression registered NOHC in the Schedule to the Life Insurance Act 1995.
RSE licensee has the meaning given in section 10 of the Superannuation Industry (Supervision) Act 1993.
subsidiary has the meaning given in Prudential Standard GPS 001 Definitions.
the prudential standard means Prudential Standard CPS 900 Resolution Planning.
Schedule
Prudential Standard CPS 900 Resolution Planning comprises the document commencing on the following page.
Prudential Standard CPS 900
Resolution Planning
Objectives and key requirements of this Prudential Standard The objective of this Prudential Standard is to ensure that APRA-regulated entities can be resolved by APRA in an orderly manner if needed, where bespoke planning and pre-positioning is required. The aim of resolution is to protect beneficiaries, minimise disruption to the financial system, and provide continuity of critical functions in the event an entity becomes non-viable. This Prudential Standard requires significant financial institutions (SFIs), and non-SFIs that provide critical functions, to support resolution planning when notified by APRA. The key requirements of this Prudential Standard are for an APRA-regulated entity to:
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(a) section 11AF of the Banking Act 1959 (Banking Act);
(b) section 32 of the Insurance Act 1973 (Insurance Act);
(c) section 230A of the Life Insurance Act 1995 (Life Insurance Act);
(d) section 92 of the Private Health Insurance (Prudential Supervision) Act 2015 (PHIPS Act); and
(e) section 34C of the Superannuation Industry (Supervision) Act 1993 (SIS Act).
2. Subject to paragraphs 3 and 4, this Prudential Standard applies to all ‘APRA-regulated entities’ defined as:
(a) authorised deposit-taking institutions (ADIs), including foreign ADIs, and non-operating holding companies authorised under the Banking Act (authorised banking NOHCs);
(b) general insurers, including Category C insurers, non-operating holding companies authorised under the Insurance Act (authorised insurance NOHCs) and parent entities of Level 2 insurance groups;
(c) life companies, including friendly societies and eligible foreign life insurance companies (EFLICs), and registered NOHCs;
(d) private health insurers; and
(e) RSE licensees in respect of their business operations.[1]
5. Where an APRA-regulated entity is the Head of a group,[2], [3] it must comply with an applicable requirement of this Prudential Standard:
(a) in its capacity as an APRA-regulated entity;
(b) by ensuring that the requirement is applied appropriately throughout the group,[4] including in relation to entities that are not APRA-regulated; and
(c) on a group basis.
6. In applying the requirements of this Prudential Standard on a group basis, references to an ‘APRA-regulated entity’ must be read as ‘Head of a group’ and references to ‘entity’ must be read as ‘group’.
7. This Prudential Standard commences on 1 January 2024. An APRA-regulated entity will be subject to the requirements of this Prudential Standard following notification from APRA.
8. Terms that are defined in Prudential Standard 3PS 001 Definitions (3PS 001), Prudential Standard APS 001 Definitions (APS 001), Prudential Standard GPS 001 Definitions (GPS 001), Prudential Standard LPS 001 Definitions (LPS 001) or Prudential Standard HPS 001 Definitions (HPS 001) appear in bold the first time they are used in this Prudential Standard.
9. In this Prudential Standard, unless the contrary intention appears, a reference to an Act, Regulations or Prudential Standard is a reference to the Act, Regulations or Prudential Standard as in force from time to time.
10. Where this Prudential Standard provides for APRA to exercise a power or discretion, the power or discretion is to be exercised in writing.
11. The following definitions are used in this Prudential Standard:
(a) critical function – means any function provided by an APRA-regulated entity that is important to financial system stability or the availability of essential financial services to a particular industry or community;
(b) non-significant financial institution (non-SFI) – means, in relation to RSE licensees, an RSE licensee that is not a significant financial institution;[5]
(c) resolution – means the process by which APRA or other relevant persons manage or respond to an APRA-regulated entity:
(i) being unable to meet its obligations; or
(ii) being considered likely to be unable, or being considered likely to become unable, to meet its obligations; or
(iii) suspending payment, or being considered likely to suspend payment;
including through the exercise of powers and functions under prudential standards or any other law;
(d) resolution option – means a strategy that APRA may use to effect a resolution;
(e) resolution plan – means a plan developed by APRA under paragraph 13 of this Prudential Standard; and
(f) significant financial institution (SFI) – means, in relation to RSE licensees, an RSE licensee that either:
(i) has total assets in excess of AUD $30 billion in the case of a single RSE operated by an RSE licensee, or if the RSE licensee operates more than one RSE, where the combined total assets of all RSEs exceed this amount; or
(ii) is determined as such by APRA, having regard to matters such as complexity in its operations or its membership of a group.[6]
12. APRA may adjust or exclude a specific requirement in this Prudential Standard in relation to an APRA-regulated entity.
14. An APRA-regulated entity must support APRA in the development and maintenance of a resolution plan.
15. An APRA-regulated entity with overseas operations must support the development and maintenance of cross-border components of the resolution plan.
17. The Board must provide oversight of and approve, where applicable:
(a) a resolvability assessment; and
19. APRA may require an APRA-regulated entity to undertake critical functions analysis, taking into account the systemic impact, customer impact and the substitutability by other providers if functions were to cease. An APRA-regulated entity may also be required to identify shared services, including those provided by third parties, upon which critical functions depend.
21. For each resolution option, the resolvability assessment must assess:
(a) any legal, structural, operational or regulatory barriers to implementation;
(b) timelines for implementation;
(c) any execution risks; and
(d) pre-positioning measures required to effectively execute the option.
22. APRA may require an APRA-regulated entity to have the resolvability assessment independently reviewed.
23. APRA may require an APRA-regulated entity to develop and implement a pre-positioning plan to remove barriers to the execution of resolution options and mitigate execution risks.
24. The pre-positioning plan must include, where applicable:
(a) changes to organisational or legal structure, including the location of any shared services within a group;
(b) renegotiation of contracts, including with third-party service providers;
(c) development of wind-down or run-off plans for particular businesses or assets;
(d) measures to ensure the operational continuity of key functions and services during resolution;
(e) capabilities necessary to support APRA in effecting the resolution options; and
(f) any other actions required to remove barriers to the execution of resolution options or mitigate execution risks.
25. APRA may require an APRA-regulated entity to implement additional pre-positioning actions if necessary to support the resolution plan.
26. An APRA-regulated entity must maintain the financial resources required to support the resolution plan.
(a) for an ADI, APRA may adjust its Total Capital prudential capital requirement under Prudential Standard APS 110 Capital Adequacy; and
(b) for a general insurer, life company or private health insurer, APRA may adjust its prudential capital requirement under Prudential Standard GPS 110 Capital Adequacy or Prudential Standard LPS 110 Capital Adequacy, or a capital adequacy supervisory adjustment under Prudential Standard HPS 110 Capital Adequacy.
28. An APRA-regulated entity must establish and maintain the capabilities required to support the resolution plan. These include:
(a) resolution governance arrangements;
(b) operational capabilities;
(c) financial management;
(d) data and systems; and
(e) where appropriate, a restructuring plan.
29. APRA may require an APRA-regulated entity to establish and maintain additional capabilities if necessary to support the resolution plan.
30. APRA may adjust the prudential requirements of an APRA-regulated entity where barriers to resolution are not addressed or where capabilities to support the resolution plan are insufficient, including changes to capital requirements where relevant.
31. APRA may require an APRA-regulated entity to:
(a) engage, at the expense of the APRA-regulated entity, expert external advisors approved by APRA, to support with any aspect of this Prudential Standard. An APRA-regulated entity must consult with APRA before finalising the terms of engagement, and must ensure that external advisors are available to meet with APRA on request. Reports prepared by external advisors must be provided to APRA and the APRA-regulated entity, including any interim or draft reports; or
(b) support external advisors engaged by APRA to assist in the exercise of APRA’s powers and functions under this Prudential Standard as it relates to the APRA-regulated entity.
32. An APRA-regulated entity that is subject to resolution planning under this Prudential Standard must review and update the critical functions analysis and resolvability assessment at least every three years, or as otherwise determined by APRA. The review must be conducted by operationally independent, appropriately experienced and competent persons. The APRA-regulated entity must submit to APRA a report of the review as soon as practicable after the report is finalised.
[1] For the purposes of this Prudential Standard, an RSE licensee has the meaning given in subsection 10(1) of the SIS Act. An RSE licensee’s business operations includes all activities of an RSE licensee (including the activities of each RSE of which it is the licensee), and all other activities of the RSE licensee to the extent that they are relevant to, or may impact on, its activities as an RSE licensee.
[2] Head of a group means a Level 2 Head or a Level 3 Head as relevant. Level 2 Head means: where an ADI that is a member of a Level 2 group is not a subsidiary of an authorised banking NOHC or another ADI, that ADI; where an ADI that is a member of a Level 2 group is a subsidiary of an authorised banking NOHC, that authorised banking NOHC; or the parent entity of a Level 2 insurance group. For life companies, Head of a group includes: where a relevant group of bodies corporate is headed by a life company that is not a subsidiary of a registered NOHC, that life company; or where a relevant group of bodies corporate is headed by a registered NOHC, that registered NOHC.
[3] Where a Level 2 group operates within a Level 3 group, a requirement expressed as applying to a Head of a group is to be read as applying to the Level 3 Head. For the avoidance of doubt, the reference to Head of a group does not apply to an RSE licensee or a private health insurer.
[4] Group means a Level 2 group, Level 3 group or a group comprising the RSE licensee and all connected entities (as defined in subsection 10(1) of the SIS Act) and all related bodies corporate (with the meaning given in section 50 of the Corporations Act 2001) of the RSE licensee, as relevant. Level 2 group means the entities that comprise Level 2 (for ADIs) or Level 2 insurance groups (for general insurers). For the avoidance of doubt, group includes a group as defined in APS 001 and, for an RSE licensee, where the RSE licensee is part of a corporate group.
[5] APS 001, GPS 001, LPS 001 and HPS 001 define this term in relation to other APRA-regulated entities.
[6] APS 001, GPS 001, LPS 001 and HPS 001 define this term in relation to other APRA-regulated entities.