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APRA consults on proposals for the supervision of conglomerate groups

Thursday 18 March 2010

 

The Australian Prudential Regulation Authority (APRA) has today released a discussion paper containing proposals on supervising conglomerate groups. These are groups with APRA‑regulated entities that have material operations in more than one APRA‑regulated industry and/or have material unregulated entities.

APRA’s proposed ‘Level 3’ supervision framework is designed to complement its existing industry‑based supervision of stand-alone entities (Level 1 supervision) and its supervision of single industry groups (Level 2 supervision).

The Level 3 framework contains proposals, building on APRA’s existing capital requirements, to ensure that a conglomerate group holds adequate capital to protect the APRA‑regulated entities from potential contagion and other risks within the group. The framework also contains proposals on a range of principles‑based risk management and governance standards that will apply to the parent company of the Level 3 group.

APRA Chairman Dr John Laker said that the global financial crisis has highlighted the importance of taking a broad, group‑wide view of prudentially regulated entities.

‘APRA’s proposals are intended to strengthen the financial soundness of APRA‑regulated entities within a conglomerate group, without unduly constraining the structure or scope of operations of the group. The flexibility of Level 3 supervision will give both APRA and the group itself a better understanding of the risks that arise from the group and its activities.’

Submissions on the Level 3 proposals are invited by 18 June 2010. Following this initial consultation, APRA will release draft prudential standards and reporting standards to implement the Level 3 framework. These standards will also be subject to public consultation.

The discussion paper can be found on the APRA website. 

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, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding $6 trillion in assets for Australian depositors, policyholders and superannuation fund members.