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Fit and proper persons

Page history last edited by PBworks 16 years, 11 months ago

APRA APS 520

ADI FIT AND PROPER PERSONS

This APRA Prudential Standard requires an ADI to have a written Fit and Proper Policy to reduce the risk that responsible persons of the regulated institution are not fit and proper for their roles.

The policy must detail the characteristics of persons who wish to become directors and senior managers of ADI’s. Such persons must show that they are “fit and proper persons” to be involved in management.

The policy must be approved by the Board, submitted to APRA and be available on request by any person.

Status

Final standard commenced 1 October 2006.

 

Definitions

A responsible person of a locally incorporated ADI is defined for this Prudential Standard as:

(a) a director ( as defined under section 9 of the Corporations Act 2001) of the regulated institution;

(b) a person who exercises any senior management responsibilities for the regulated institution (senior manager);

(c) an auditor of the regulated institution who prepares any report in relation to it that is required to be prepared by an auditor under the Act (including Prudential Standards) or Reporting Standards under the Financial Sector (Collection of Data) Act 2001 (responsible person auditor); and

(d) any other person whom APRA determines by notifying the regulated institution in writing being a person whom APRA is satisfied plays a significant role in relation to the management or control of the regulated institution, or provides services or support for it which are of a prudentially significant nature.

Senior managers are those who exercise responsibilities that may have a material affect on the whole or a substantial part of the regulated institution's business or financial standing.

A responsible person may include persons who are not employees of the ADI, such as consultants or contractors.

Only responsible persons of ADI subsidiaries deemed 'material' will need to comply with the fit and proper standards. A subsidiary is material if:

  • its assets are greater than 10% of the group's total assets;
  • its revenue is greater than 10% of the group's total revenue;
  • the subsidiary is strategically important to group;
  • the subsidiary is an APRA-regulated institution; or
  • APRA has notified the ADI that it considers the subsidiary to be material to the operations of the ADI.

Processes

The 'Fit and Proper Policy' for responsible persons must have processes for assessing fitness and propriety. The criteria for determining whether a person is “fit and proper” to hold a responsible person position (other than as the responsible person auditor of the regulated institution) are whether for that person and position:

(a) it would be prudent for a regulated institution to conclude that the person possesses the competence, character, diligence, honesty, integrity and judgement to properly perform the responsible person position;

(b) the person is not disqualified under the Act from holding the position; and

(c) if the person may have a conflict of interest, it would be prudent for a regulated institution to conclude that the conflict will not create a material risk that the person will not properly perform the position.

The policy must include minimum criteria for assessing:

  • the character, competence, diligence, experience, honesty, integrity and judgment of responsible persons; and
  • conflicts of interest, educational or technical qualifications, knowledge and skills relevant to the duties and responsibilities of responsible persons.

Additional requirements would also apply to responsible

person auditors, approved auditors and approved actuaries.

Assessment

The policy should address:

  • Persons responsible for conducting the Fit and Proper assessments (eg a Nominations Committee);
  • Information that needs to be obtained in order to make the assessment;
  • The decision making processes.

Regulated institutions will generally be required to assess responsible persons before appointment or at least within 20 business days of their appointment where exceptional circumstances exist, with a re-assessment every 13 months.

Regulated institutions must apply prudent judgment in determining if the materiality, elapsed time and, when relevant, any repetition or duration of circumstances means that the person could not safely be considered fit and proper.

If an adverse finding is made, regulated institutions must not appoint the person to a responsible person position, or must ensure that they do not continue to hold a responsible person position. APRA can remove or disqualify responsible persons if a regulated institution is unwilling or unable to take action.

Contract, employment law or the Corporations Act may restrict the ability of regulated institutions to remove responsible persons. In these circumstances, the draft standards require regulated institutions to notify APRA so that it may exercise its powers to direct removal if appropriate.

Regulated institutions must include provisions in their Fit and Proper Policy that ensures that people who "blow the whistle" or make disclosures in good faith are not disadvantaged.

Regulated institutions must provide APRA with:

  • personal details and a full CV (including qualifications and experience, business relationships, associations and memberships);
  • information about whether the person complies with the fit and proper criteria.

These details must be provided to APRA within 28 days of any appointment, resignation, removal or material change in the responsibilities of the responsible person.

The draft standards are subject to spent convictions provisions of the Crimes Act. This means that

responsible persons will not be required to disclose spent convictions under the draft standards.

The collection of personal information will be exempt from the Privacy Act requirements where its collection

is required by another law. APRA also notes that requests under FOI provisions for personal information provided to APRA would be subject to secrecy provisions.

The guidance notes to the standards make it clear that each director of a regulated institution does not need to have all the competencies that the board needs collectively.

The entity’s Risk Management Statement must refer to the Fit and Proper Policy.

The Constitution may also need to be amended to reflect new director nomination and removal processes.

 

 

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