APRA Prudential Standard APS 520 – Fit and Proper – Overview and Summary of Requirements
The Australian Prudential Regulatory Authority (APRA) Prudential Standard APS 520 Fit and Proper aims to:
- strengthen protection for depositors / policy- holders against risks involved in regulated institutions
- enhance the caliber of those charged with running APRA-regulated institutions
- establish a minimum benchmark for acceptable practice in the appointment of responsible persons /auditors
This article provides a brief overview of the regulatory requirements demanded by this standard.
Applicability:
The standard applies to regulated institutions like ADI’s (Authorised Deposit-taking Institutions) and Authorised Non-operating Holding Companies (under the applicable Act) and specifies minimum requirements for determining the fitness and propriety of responsible persons / delegated personnel.
Key requirements
Fit and Proper Policy
Regulated institutions should ensure that their boards, senior management and other responsible persons are fit and proper/ have appropriate skills, experience and knowledge for their roles and act with honesty and integrity. They should prudently manage the risks or financial standing that persons acting in responsible person positions are not fit and proper.
- The fitness and propriety of delegated staff should be assessed prior to initial appointment and reassessed on an annual basis.
- Regulated entities should have their own policies /procedures in place and should also take all prudent steps to ensure their responsible persons are fit and proper and each of its responsible persons are aware of/ understand the provisions of its Fit and Proper Policy.
- The Fit and Proper Policy should be a part of an ADI’s risk management system – according to applicable Prudential Standards.
- Regulated institutions can apply this Fit and Proper Policy (even if used in a related company) provided the policy has been approved by the regulated institution.
- APRA has the power to remove a responsible person when it considers is not fit and proper - in cases, wherein an institution is unable or unwilling to take action itself.
Criteria to determine if a responsible person is fit and proper
- Regulated institutions should clearly document the competencies /skills required for a responsible person’s position.
- The criteria for the purpose of determining whether a person is fit and proper:
- Necessary skills to perform properly the duties of the responsible person position
- Qualification
- No conflict of interest in performing his duties
Additional criteria applying to responsible auditors
Additional criteria required for a person to be fit and proper to act as a responsible auditor are whether the person:
- is registered as an auditor under the applicable Act
- is native of Australia
- is a member of a recognised professional body
- has a minimum of 5 years relevant experience - to qualify as an auditor of an ADI,
- is familiar with current issues in the audit of ADIs
Process for assessment of fitness and propriety
- The Fit and Proper Policy should include relevant policies /procedures (processes) so as to assess whether a person is fit and proper for a responsible person position. The processes should include:
- information about staff responsible for conducting fit and proper assessments on behalf of the regulated institution
- information about data to be retrieved
- information about required skill sets / matters to consider - in order to determine
- if a person is fit and proper for a responsible person position
- details about the decision-making processes
- A fit and proper assessment should be completed for each responsible person within 28 days (of this Prudential Standard applying to a regulated institution).
- The Fit and Proper Policy should require a fit and proper assessment to be completed before a person becomes delegated for the assigned duty unless resolution of members of the regulated institution has occurred / APRA has determined that the person is a responsible person.
Interim appointments:
- Interim appointment can be made without a full fit and proper assessment for a period of up to 90 days. A basic fit and proper test should be conducted.
Post-assessment disclosures:
- Where a responsible person has been assessed as fit and proper, but the regulated institution subsequently becomes aware of information that may result in the person being assessed as not fit and proper- prudent steps / necessary measures should be taken to confirm that no material fitness and propriety concern exists. If required a full fit and proper assessment must be conducted.
Relevant information:
- The Fit and Proper Policy should contain adequate provisions:
- so as to encourage any person to disclose information that may be relevant to a fit and proper assessment to the regulated institution /APRA
- to enable the disclosure to APRA of any information the regulated institution is required to provide under applicable standards
- for giving or obtaining any consents required for the collection and use of any information required by the regulated institution
Documentation:
- The Fit and Proper Policy should require that necessary documentation for each fit and proper assessment is retained /archived
Whistleblowing
- The Fit and Proper Policy should include adequate provisions to allow whistle-blowing when a responsible person does not meet the regulated institution’s fit and proper criteria.
- The Fit and Proper Policy should require that all reasonable steps be taken to ensure that no person making such disclosures in good faith is subject to threatening /coerced.
When a responsible person is not fit and proper
When a regulated institution or a person in a responsible position has assessed that a person is not fit and proper, steps should be taken to ensure that the person:
- is not appointed /delegated as a responsible person
- does not continue to hold the position – if already delegated as a responsible person.
Informing APRA
- A regulated institution should notify APRA at the earliest (within 28 days even in case of any change or new appointment) the following information for each responsible person:
- the person’s full name;
- the person’s date of birth (for identification purposes only);
- the person’s position / main responsibilities
- a statement of whether the person has been assessed under the Fit and Proper Policy
- A regulated institution should ensure that the information provided is true and remains correct for all of its responsible persons.
- A regulated institution should notify APRA (within 10 business days) - if it assesses that a responsible person is not fit and proper. If the person is already delegated as a responsible person, then the notification should state the reason and action being taken.
- A regulated institution should take prudent steps:
- to obtain any information and documentation required by APRA
- to provide that information to APRA
- to assist APRA in assessing the fitness and propriety of a person.
Additional Resources
Read the APRA Prudential Standard - 520 - Fit and Proper - in full here.
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