APG 510 Governance[1]

7/27/2019 APG 510 Governance[1]

http://slidepdf.com/reader/full/apg-510-governance1 1/7

Prudential Practice GuideAPG 510 — GovernanceMay 2006

www.apra.gov.au

Australian Prudential Regulation Authority



Australian Prudential Regulation Authority 2

Disclaimer and copyright

This prudential practice guide is not legal advice andusers are encouraged to obtain professional adviceabout the application of any legislation or prudentialstandard relevant to their particular circumstances andto exercise their own skill and care in relation to anymaterial contained in this guide.

APRA disclaims any liability for any loss or damagearising out of any use of this prudential practice guide.

This prudential practice guide is copyright. You mayuse and reproduce this material in an unaltered formonly for your personal non-commercial use or non-commercial use within your organisation. Apart fromany use permitted under the Copyright Act 1968, all

other rights are reserved. Requests for other types of use should be directed to APRA.




Prudential Standard APS 510 Governance (APS 510) setsout APRA’s requirements in relation to the governanceof authorised deposit-taking institutions (ADIs)and authorised non-operating holding companies(authorised NOHCs), collectively referred to asregulated institutions. This prudential practice guideaims to assist regulated institutions in complying withthose requirements and, more generally, to outlineprudent practices in relation to certain governancematters.

Subject to the requirements of APS 510, regulated

institutions have the flexibility to configure theirgovernance framework in the way most suited toachieving their business objectives.

Not all the practices outlined in this prudentialpractice guide will be relevant for every regulatedinstitution and some aspects may vary dependingupon the size, complexity and risk profile of theregulated institution.

About this guide




Principles1. A number of principles underpin a sound and

effective governance framework for a regulatedinstitution. These include:

(a) responsibility — the board of directors(the Board) is ultimately responsible andaccountable for the decisions and actionstaken by a regulated institution;

(b) independence — demonstrated by a Boardthat discharges its review and oversight role

effectively and independent of the interestsof dominant shareholders, management,and competing or conflicting businessinterests;

(c) renewal — a policy of renewal provides forfresh insight and general reinvigorationof the Board while also ensuring ongoingunderstanding of the business of theregulated institution;

(d) expertise — demonstrated by a Board with

the necessary expertise to fulfil its roleand functions and access to independentexpertise not readily available amongst thecurrent directors;

(e) diligence — demonstrated by a Board thatdischarges its duties and responsibilitiescarefully and conscientiously;

(f) prudence — demonstrated by a Board witha clear focus on the prudent managementof the regulated institution;

(g) transparency — demonstrated by a Boardthat is open and honest in its dealings onbehalf of the regulated institution; and

(h) oversight — demonstrated by a Board thatis able to satisfy itself that the managementand operation of the regulated institutionconforms with its strategy, direction andpolicies.

Independence

2. A person who is a member of a mutual societythat is a regulated institution is not by that fact

alone to be considered not independent forthe purposes of meeting the independencerequirements in APS 510. A person isonly precluded from being considered anindependent director if they do not meet thecriteria for independence referred to in APS 510.

Residency

3. As a guide, a person might be considered‘ordinarily resident’, as referred to in APS 510,if they are likely to be in Australia for a majority

of days in any 12-month period.

The Board and senior management

4. As stated in APS 510, the Board has ultimateresponsibility for the sound and prudentmanagement of a regulated institution. Awell-functioning Board will review and approvebusiness strategies and significant policies of the regulated institution. It will also satisfy itself that an effective system of risk management and

internal control is established and maintained,and that senior management monitors theeffectiveness of the risk management framework.

5. Senior management has responsibility forday-to-day management of the regulatedinstitution. This includes the implementation andmonitoring of structures, processes, informationand oversight arrangements used in managingthe regulated institution.

Conflicts of interest

6. The Corporations Act 2001 (CorporationsAct) contains requirements for dealing withconflicts of interest. Specifically, subject tocertain exceptions, subsection 195(1) of theCorporations Act requires a director of a publiccompany with a material personal interest in amatter that is being considered at a directors’meeting not:

(a) be present while the matter is beingconsidered at the meeting; or

(b) vote on the matter.




7. The Corporations Act allows exceptions to thisrule. Subsection 195(2) permits directors whodo not have a material personal interest in amatter to pass a resolution that the directorwith a material personal interest should not bedisqualified from voting or being present whenthe matter is considered.

8. APRA expects that such resolutions would belimited to exceptional circumstances and to beminuted, together with reasons.

9. Section 195 of the Corporations Act does not

apply to the directors of proprietary companiesor foreign ADIs. However, APRA expects thatdirectors of all ADIs will absent themselves fromdiscussions and voting on matters where theyhave a conflict of interest, as if subsection 195(1)and the exceptions to it under the CorporationsAct applied.

Regulated institutions that arepart of a corporate group

10. Where a regulated institution is part of acorporate group1, APRA expects that the Boardof the regulated institution will consider thepotential impact of the operations of otherentities in the group on the regulated institution.If the regulated institution is at the head of the group, APRA would expect the Board tohave considered the impact of the operationsof member entities of the group on all APRA-regulated institutions within the group.

Board committees11. A well-functioning Board of a regulated

institution will typically consider whether theremay be merit in establishing board committeesfor the purpose of overseeing critical functions.While APS 510 requires only the establishmentof a Board Audit Committee, the Board may findthe establishment of other committees beneficialfor certain functions and for strengtheningthe overall governance arrangements of theregulated institution.

12. While some duties of directors may be delegatedto board committees, as appropriate, the Boardretains ultimate responsibility for ensuring thatthose duties are performed.

13. In establishing committees, a well-functioningBoard will have regard to the risk profile of theregulated institution and the complexity of itsbusiness, as well as the experience and expertiseof the directors.

14. Where board committees are established, it wouldbe prudent practice for these committees to have

clearly defined charters that set out their roleand objectives, responsibilities, authorities andtenure, and that the charters of these committeesbe regularly reviewed. It would also be prudentpractice that board committees report regularly tothe Board.

Board Audit Committee

15. APRA expects that, in addition to therequirements in APS 510, the Board AuditCommittee will, from time to time, meetseparately with the internal auditor and externalauditor without other parties being present.

Board Risk Committee

16. APRA does not require a regulated institutionto establish a dedicated Board Risk Committee.However, APRA expects that the Board will haveconsidered the necessity of such a committee andthe suitability of arrangements for dealing withrisk issues at the Board level. Typically, larger and

more complex regulated institutions will have aseparate Board Risk Committee.

17. A Board Risk Committee would be responsiblefor formulating the risk strategy of the regulatedinstitution, for determining policies that ensurethe strategy is adhered to and for monitoringadherence to those policies.

18. Where a regulated institution has a dedicatedBoard Risk Committee, it would be prudentpractice for the committee to allow thoseresponsible for risk management functions to

meet with it, without other parties being present.

1 A ‘corporate group’ comprises more than one company that are related bodies corporate within the meaning of section 50 of the Corporations Act.Requirements for corporate groups are set out in Prudential Standard APS 222 Associations with Related Entities.




Internal audit19. While APS 510 requires the internal audit

function to have a reporting line and unfetteredaccess to the Board Audit Committee, this doesnot preclude the internal auditor from having areporting line to management, provided that thisdoes not undermine the independence of theinternal audit function, either in appearance orin fact.

Board performance assessment20. APS 510 requires the Board to assess its

performance and that of individual directorsrelative to its objectives. In undertaking thisassessment, a well-functioning Board will typicallyconsider and document the objectives that itsets for the Board collectively and for individualdirectors.

21. Objectives for the Board could include:

(a) establishing the overall strategy for the

regulated institution and ensuring reportingagainst this strategy;

(b) approving the risk management strategyof the regulated institution includingdetermining the level of risk it is willingto accept;

(c) assessing operating and financial conditionsagainst forecasts;

(d) assessing senior management performanceagainst agreed criteria, which would include,

for relevant senior management, theeffectiveness of risk controls; and

(e) making key decisions in a timely manner.

22. Objectives for individual directors could include:

(a) whether a director demonstrates therequired expertise for their role;

(b) attendance and participation at Boardmeetings; and

(c) contribution to Board deliberations and the

overall direction of the regulated institution.



Telephone

1300 13 10 60

Email

[email protected]

Web site

www.apra.gov.au

Mail

GPO Box 9836

n all capital cities

(except Hobart and Darwin)

http://www.apra.gov.au/policy

http://www.apra.gov.au/

http://www.apra.gov.au/

http://www.apra.gov.au/policy

Documents

APG 510 Governance[1]