The Australian Prudential Regulation Authority (APRA) today issued, for consultation, a Discussion Paper, accompanied by draft prudential standards and a prudential practice guide, on managing risks from outsourcing. The standards apply a harmonised approach to authorised deposit-taking institutions (ADIs), general insurers and life insurers.
The package represents a principles-based approach detailing APRA's minimum requirements for managing risks from outsourcing but leaving the way open for institutions to develop their outsourcing policy that meets the principles.
The draft prudential standards are largely based on the requirements currently in place for ADIs but introduce greater flexibility in the approach to intra-group outsourcing and deal explicitly with outsourcing to an offshore party ('offshoring').
The general insurance industry has been involved in extensive consultation about the proposed prudential standards. This round of consultation is occurring to obtain views from all three industries, at the same time, since the new standards will be applied in identical form to all APRA-regulated institutions in these industries.
APRA Chairman, Dr John Laker, said the risks arising from outsourcing arrangements are common across the industries regulated by APRA and are best addressed through a harmonised approach.
"Well-run institutions already apply many of the proposed policies as part of their operational risk management systems. These proposals will ensure a consistent framework across our industries and bring APRA's approach into conformity with international regulatory principles," Dr Laker said.
The draft prudential standards and prudential practice guide will be finalised in the second quarter of 2006 and will take effect on 1 October 2006. The Discussion Paper, Outsourcing, along with the draft prudential standards and the draft prudential practice guide, are available on APRA's web site at:
Comments on the proposals are invited by 26 May and can be emailed to APRAoutsourcing@apra.gov.au
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 $2.2 trillion in assets for 20 million Australian depositors, policyholders and superannuation fund members.
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Stuart Snell, Head of Public Affairs
Australian Prudential Regulation Authority
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