Contains 0 items
Total: $0.00
View Shopping Cart

Australian Prudential Regulatory Authority Prudential Standard APS 510 – Governance – Overview and Summary of Requirements

By: Staff Editor
Date: March 20, 2013

The Australian Prudential Regulation Authority (APRA) has issued Prudential Standard APS 510 Governance, which sets out minimum foundations for good governance of regulated financial institutions. It also defines the respective roles, responsibilities and authorities of the Board and of Management in setting the direction, management and control of the organisation. These standards influence how the objectives of the company are set and achieved, how risk is monitored and assessed, and how performance is optimized. This article provides an overview of the requirements included in the standard.

Applicability

The Prudential Standard applies to all Authorised Deposit-taking Institutions (ADIs) and Authorised Non-Operating Holding Companies (Authorised NOHCs). Foreign ADIs should comply with only those provisions specific to them in relation to Australian business.

Board Composition and Functioning

The standard details requirements relating to Board composition and functioning for various types of institutions:

Type of Institution	Board Composition
Regulated institutions as subsidiaries of other APRA- regulated institutions /overseas equivalents	The Board of the regulated institution (which is a subsidiary of another APRA-regulated institution /an overseas equivalent) should have a majority of non-executive directors, a minimum, two independent directors - in addition to an independent chair-person.
Subsidiaries with a parent entity that is not prudentially regulated	The Board (of a regulated institution which is a subsidiary of another entity) should have a majority of independent directors (independent directors on the Board of the parent company or its other subsidiaries can also act as independent directors on the Board of the regulated institution).
Joint ventures	A regulated institution that operates as a joint venture is considered as part of the group of each parent entity - independent directors of a parent entity can function as independent directors on the Board of the joint venture entity.

Regulated institutions as a part of a corporate group

When the regulated institution utilises group policies / functions (when the regulated institution is part of a corporate group) - the Board of the regulated institution should ensure that these policies and functions are suitable to the business and its specific requirements of the regulated institution.

Board Audit Committee

A regulated institution should have a Board Audit Committee for assisting the Board in providing a non-executive review of the effectiveness, financial reporting and risk management framework. The standard details the following requirements relating to Board Audit Committees and their responsibilities:

Obtaining Information	The Board Audit Committee should have sufficient powers to enable it to obtain all information necessary for the performance of its functions.
Composition	At least three members who are non-executive directors of the regulated institution. A majority of the members of the Committee should be independent.
Chairperson	Should be an independent director
Charter	Should have a charter makes it clear the Committee is responsible for: the oversight of APRA statutory reporting requirements, other financial reporting requirements, professional accounting requirements, internal and external audit, and the appointment of external auditors
Reviews	Should review the external auditor’s engagement (on an annual basis) It is the responsibility of the senior officer to undertake this task – in the case of foreign ADIs. Should regularly review the internal and external audit plans (ensuring that they cover all material risks, financial reporting requirements and issues resolved in a suitable and timely manner) findings of audits.
Auditor Independence	Should ensure the adequacy and independence of both the internal and external audit functions
Free Access	The members of the Board Audit Committee should at all times - ensure that there is free access to senior management, the internal auditor, the heads of all risk management functions and the external auditor.
Whistleblowing	Should ensure that controlled policies and procedures are in place for employees of the regulated institution to submit, confidentially, information about accounting, internal control, compliance, audit, and other matters about which the employee has concerns. It’s the Committee’s responsibility to ensure employees are made aware of these policies
Meeting with APRA	Members of the Board Audit Committee should be available to meet with the Regulatory Agency, if necessary.
External Auditor Present at Meetings	The Board Audit Committee should ensure the institution’s external auditor is aware of/attends Committee meetings
Internal Auditor Reporting	The internal auditor should have a reporting line and access to the Board Audit Committee.
Foreign ADIs	In the case of foreign ADIs, the auditor of the local operation should have direct access to the Head Office audit function.

Internal audit

A regulated institution should have an independent and adequately resourced internal audit function.
The objectives of the internal audit function should include evaluation of the adequacy and effectiveness of the financial and risk management framework of the regulated institution.
The internal auditor should at all times have free access to all the regulated institution’s business lines and support functions.

Auditor independence

The Board of an ADI should undertake steps to satisfy themselves that the auditor who undertakes work for the ADI (or foreign ADI) is independent of the ADI/ foreign ADI and that there is no conflict of interest
As part of the process of ascertaining the independence of the auditor, an ADI/ foreign ADI should obtain a declaration from the auditor to the effect that the auditor is independent and that there is nothing to the auditor’s knowledge that could compromise that independence.

Board performance assessment

The Board of a regulated institution should have procedures for assessing (on an annual basis) the Board’s performance relative to its objectives. It should also have in place a procedure for assessing the performance of individual directors.

Board renewal

The Board of a regulated institution should have in place a formal policy on Board renewal which provides details of how the Board intends to renew itself in order to ensure it remains open to new ideas/ independent firm /audit company for the conduct of audit work conducted in accordance with the Prudential Standards or the Reporting Standards.
The formal policy should give consideration to whether directors have served on the Board for a period which could reasonably be perceived to materially interfere with their ability to act in the best interests of the regulated institution.
Regulated institutions (including foreign ADIs) should ensure that their internal policy and contractual arrangements do not explicitly or implicitly restrict or discourage auditors or other parties from communicating with APRA.

Additional Resources

Read the Australian Prudential Standard 510 - Governance in full here.