The Australian Prudential Regulation Authority (APRA) today released draft prudential standards and a discussion paper outlining proposed governance arrangements for authorised deposit-taking institutions (ADIs), general insurers, life insurers and authorised non-operating holding companies (NOHCs).

The package, which follows extensive industry consultation, outlines proposals for boards of APRA-regulated institutions to:

• meet composition requirements regarding board size, independence of directors and shareholder representation;
• have a majority of independent non-executive directors, with exceptions for certain types of subsidiaries;
• have an independent non-executive director as chairperson of the board;
• establish a Board Audit Committee and a Board Risk Committee;
• have a policy on board renewal;
• ensure their institutions have a dedicated internal audit function; and
• apply independence provisions for external auditors, consistent with the CLERP 9 requirements in the Corporations Act.

APRA Chairman Dr John Laker said that the proposed prudential standards are intended to ensure that APRA-regulated institutions consider key governance principles, based on the ASX Principles of Good Corporate Governance for listed companies, and meet standards of governance that are generally considered good practice.

“The reforms also aim to ensure that board members have access to appropriate independent expertise and that the composition of boards of APRA-regulated institutions reflects a prudent balance of independent oversight and industry experience,” he said.

The consultation package follows proposals outlined in APRA’s discussion paper Prudential Supervision of General Insurance Stage 2 Reforms, issued in November 2003.

Comments on the discussion paper and draft prudential standards are invited by 12 August 2005.

APRA’s discussion paper and draft prudential standards are located on APRA’s web site.

The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry.APRA is funded largely by the industries that it supervises. It was established on 1 July 1998.APRA currently supervises institutions holding approximately $2.0 trillion in assets for 20 million Australian depositors, policyholders and superannuation fund members.