The Australian Prudential Regulation Authority (APRA) today issued new prudential standards on outsourcing for authorised deposit-taking institutions (ADIs), general insurers and life companies.

The outsourcing package - which contains three industry-specific prudential standards and a harmonised prudential practice guide on outsourcing, as well as a prudential practice guide dealing with custody arrangements for general insurers - has been finalised following extensive industry consultation.

The standards are designed to ensure regulated institutions manage the risks from outsourcing material business activities in a prudent manner. They are based largely on those in place for ADIs since 2002, but introduce greater flexibility in the approach to intra-group outsourcing and deal explicitly with outsourcing to an offshore party ('offshoring'). The standards enhance current arrangements for general insurers and formally extend to the life insurance sector for the first time.

APRA Chairman, John Laker, said that the outsourcing package gives APRA the opportunity to harmonise the approach it takes to outsourcing across the deposit-taking and insurance sectors.

"The use of third parties to perform business activities can be beneficial but can entail additional risks. APRA has introduced a principles-based, harmonised approach setting out minimum requirements for managing risks from outsourcing but enabling institutions to tailor their outsourcing policy to meet their individual needs. Well-run institutions already address these outsourcing principles as part of their operational risk management systems."

The proposals are consistent with international regulatory principles, including those promulgated by the Joint Forum, which comprises the Basel Committee on Banking Supervision, the International Organisation of Securities Commissions and the International Association of Insurance Supervisors.

The prudential standards will take effect on 1 January 2007. Transition arrangements may apply in some cases.

The prudential standards and prudential practice guides are located on the APRA website (www.apra.gov.au) at:

http://www.apra.gov.au/Policy/Prudential-Standards-Guidance-Notes-for-ADIs.cfm 
http://www.apra.gov.au/ADI/Authorised-Deposit-Taking-Institutions-PPGs.cfm

http://www.apra.gov.au/General/General-Insurance-Prudential-Standards-and-Guidance-Notes.cfm
http://www.apra.gov.au/General/General-Insurance-PPGs.cfm

http://www.apra.gov.au/life/Prudential-Standards.cfm
http://www.apra.gov.au/Life/Life-Insurance-PPGs.cfm

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 $2.5 trillion in assets for 20 million Australian depositors, policyholders and superannuation fund members.

Media and industry inquiries only:
Stuart Snell, Head of Public Affairs
Australian Prudential Regulation Authority
Telephone: 02 9210 3384
Mobile: 0407 250 276

All other inquiries:
APRA Contact Centre
1300 131 060