Resolution is defined in paragraph 11(c) as the process by which APRA or other relevant persons manage or respond to an entity being unable to meet its obligations, likely to become unable to do so, or suspending payment. This includes exercise of powers under prudential standards or other law. The definition is broad and does not limit what APRA can do.

Resolution plan means a plan developed by APRA under paragraph 13. It is bespoke to the entity and sets out steps APRA may take to protect beneficiaries and maintain critical functions. Resolution options include wind down, transfer, or recapitalisation. The plan is APRA’s document; the entity supports its development.

Resolution option is a strategy that APRA may use to effect a resolution. The standard does not list all options, but paragraph 13 names wind down, transfer, and recapitalisation as examples.

Critical function is defined in paragraph 11(a) as any function provided by an APRA regulated entity that is important to financial system stability or the availability of essential financial services to a particular industry or community. The definition is open ended and depends on APRA’s assessment. Paragraph 19 says APRA may require the entity to undertake critical functions analysis considering systemic impact, customer impact, and substitutability. Shared services on which critical functions depend must also be identified.

Resolvability assessment under paragraph 20 is an entity conducted assessment of the feasibility of resolution options. It must assess legal, structural, operational or regulatory barriers; timelines; execution risks; and pre positioning measures needed. APRA can require it to be independently reviewed at the entity’s cost.

Pre positioning plan under paragraph 23 is a plan to remove barriers to resolution options and mitigate execution risks. It can include changes to organisational or legal structure, contract renegotiation, development of wind down or run off plans, measures for operational continuity, capabilities to support APRA, and other actions. APRA can require additional pre positioning actions under paragraph 25.

Loss absorbing capacity is required by paragraph 27 for non RSE licensees, allowing APRA to adjust capital requirements under the relevant capital adequacy standards (APS 110, GPS 110, LPS 110, HPS 110). For ADIs, APRA may adjust the Total Capital prudential capital requirement; for general insurers, life companies, and private health insurers, APRA may adjust ordinary capital requirements or apply supervisory adjustments.

Significant financial institution (SFI) is defined only for RSE licensees in paragraph 11(f): assets over $30 billion (single fund or combined funds) or determination by APRA having regard to complexity or group membership. For other entity types the term is used but not defined in this standard; presumably it is defined in sectoral prudential standards or APRA will determine it. Non significant financial institution (non SFI) means an RSE licensee that is not an SFI; for others the term is used but undefined. Importantly, non SFIs that APRA determines provide critical functions are also subject to the standard under paragraph 4.

Capabilities for resolution are listed in paragraph 28: resolution governance arrangements, operational capabilities, financial management, data and systems, and where appropriate a restructuring plan. APRA can require additional capabilities under paragraph 29.

The standard applies to all APRA regulated entities listed in paragraph 2: authorised deposit taking institutions (including foreign ADIs and authorised banking NOHCs), general insurers (including Category C insurers and authorised insurance NOHCs and parent entities of Level 2 insurance groups), life companies (including friendly societies and eligible foreign life insurance companies and registered NOHCs), private health insurers, and RSE licensees. For foreign ADIs, Category C insurers, and EFLICs, obligations apply only to Australian branch operations under paragraph 3.

Within this population, only significant financial institutions (SFIs) and non SFIs that APRA determines provide critical functions are subject to the obligations (paragraph 4). SFI status for RSE licensees turns on a $30 billion asset threshold or APRA determination. For other entity types, SFI status is likely determined by APRA through other mechanisms or sectoral definitions, though the standard does not provide a clear rule. That means many smaller entities - credit unions, small general insurers, smaller superannuation funds - are presumptively excluded unless APRA deems them to provide critical functions.

The standard also applies to the Head of a group (paragraphs 5 and 6). Where an APRA regulated entity is the head of a group, it must comply in its own capacity, ensure the requirement is applied appropriately throughout the group (including entities that are not APRA regulated), and comply on a group basis. References to entity in the standard become references to group. This extends obligations beyond APRA regulated entities to all entities in the group, potentially including commercial subsidiaries, service companies, and overseas entities.

Entities with overseas operations must support cross border components of the resolution plan under paragraph 15.

The broadest reaching effect is on large, complex financial groups. The cost of compliance will fall heavily on them - legal restructuring, contract renegotiation, additional capital, external advisor fees, and ongoing capability maintenance. Smaller entities with critical functions (e.g., a small insurer providing key coverage in a remote area) may also be caught by APRA determination despite their size.

Duty to support APRA in resolution planning. Paragraphs 14 and 15 require all subject entities to support APRA in developing and maintaining a resolution plan, including cross border components for overseas operations. This is a general duty without a defined scope; APRA can request information, analysis, and cooperation.

Board responsibilities. Under paragraph 16, the Board must support APRA in resolution planning and is ultimately responsible for compliance with the standard. It must ensure clear roles and responsibilities at senior executive level. Under paragraph 17, the Board must provide oversight of and approve (where applicable) the resolvability assessment and pre positioning plan.

Critical functions analysis. If APRA requires (paragraph 18), the entity must support APRA in determining whether it provides critical functions. Under paragraph 19, APRA may require the entity to undertake critical functions analysis considering systemic impact, customer impact, and substitutability, and to identify shared services critical functions depend on.

Resolvability assessment duty. If APRA requires under paragraph 20, the entity must conduct a resolvability assessment using personnel with appropriate skills and experience. The assessment must address barriers, timelines, execution risks, and pre positioning measures for each resolution option (paragraph 21). APRA can require independent review at entity’s expense (paragraph 22).

Pre positioning plan duty. If APRA requires under paragraph 23, the entity must develop and implement a pre positioning plan covering the matters in paragraph 24, including structural changes, contract renegotiation, wind down plans, operational continuity measures, and capabilities. APRA can require additional actions under paragraph 25.

Financial resources and loss absorbing capacity. The entity must maintain financial resources required to support the resolution plan (paragraph 26). For non RSE licensees, APRA may require a specific amount of loss absorbing capacity by adjusting capital requirements (paragraph 27). This is a significant potential cost, as capital requirements may be increased beyond ordinary prudential minima.

Capabilities duty. The entity must establish and maintain capabilities listed in paragraph 28: resolution governance, operational capabilities, financial management, data and systems, and where appropriate a restructuring plan. APRA can require additional capabilities (paragraph 29) and if barriers not addressed or capabilities insufficient, can adjust prudential requirements including capital (paragraph 30).

Engagement of external advisors. APRA can require the entity to engage, at its own expense, expert external advisors approved by APRA (paragraph 31(a)). The entity must consult with APRA on terms of engagement and ensure advisors meet with APRA on request. Reports must go to both APRA and the entity. Alternatively, APRA can require the entity to support external advisors APRA has engaged (paragraph 31(b)).

Review and notification duties. Under paragraph 32, the entity must review and update critical functions analysis and resolvability assessment at least every three years (or as APRA determines). The review must be conducted by operationally independent, experienced and competent persons. A report must be submitted to APRA as soon as practicable after finalised. The review must recommend changes to pre positioning plan, resources, and capabilities (paragraph 33). Under paragraph 34, the entity must notify APRA of material changes to business or operations that may create a barrier to resolution.

Rights of the entity. The entity has few rights; the standard is largely directive. However, APRA may adjust or exclude specific requirements for an entity under paragraph 12 - but this is at APRA’s discretion. The entity can be heard in the development of its resolution plan, but the standard gives no right of appeal or veto. The entity can propose changes through the triennial review process.

This Prudential Standard does not itself prescribe monetary penalties or criminal offences. It creates obligations enforceable under the underlying Acts under which it is made: the Banking Act 1959, Insurance Act 1973, Life Insurance Act 1995, Private Health Insurance (Prudential Supervision) Act 2015, and Superannuation Industry (Supervision) Act 1993. Each of those Acts contains enforcement powers including directions, licence conditions, licensing suspension or cancellation, civil penalties, and in some cases criminal penalties for serious contraventions.

APRA can respond to non compliance with this standard through a direction to comply; failure to comply with a direction may itself be an offence under the relevant Act. For ADIs, for example, the Banking Act allows APRA to issue directions under section 11CA or apply to the Federal Court for orders. For RSE licensees, the SIS Act gives APRA power to issue directions or remove trustees. APRA may also impose additional capital requirements under its existing powers adjusted via paragraph 27 or paragraph 30, which acts as a financial enforcement tool rather than a penalty.

The standard also provides indirect enforcement through the external advisor mechanism: APRA can require the entity to pay for advisors to support the standard, which becomes a cost of compliance regardless of willingness. If the entity refuses, APRA could treat that as a failure to maintain required capabilities.

Entities subject to the standard should treat it as legally binding. Non compliance exposes the entity to regulatory action that could threaten its licence or result in significant financial consequences. The standard does not provide for penalty waivers or safe harbours.

This standard is made under five Acts (paragraph 1) and references several other prudential standards. It operates as an overlay on existing capital, governance, and risk management requirements.

For capital requirements, paragraph 27 specifically references APS 110 for ADIs, GPS 110 and LPS 110 for insurers and life companies, and HPS 110 for private health insurers. These are the primary capital adequacy standards. This standard allows APRA to adjust capital requirements under those standards to support loss absorbing capacity for resolution. That means an entity subject to this standard may face capital requirements higher than the baseline prescribed in those standards.

Paragraph 27 applies to non RSE licensees only. RSE licensees are subject to financial resource requirements under paragraph 26 (general requirement to maintain financial resources to support the resolution plan) but not to an explicit loss absorbing capacity adjustment under this standard. However, paragraph 26 is broad and could encompass capital adjustments via other powers.

Definitions are imported from sectoral definitions standards: 3PS 001 (superannuation), APS 001 (banking), GPS 001 (general insurance), LPS 001 (life insurance), and HPS 001 (private health insurance) (paragraph 8). This ensures consistency with other prudential requirements.

The standard also interacts with group supervision requirements. Paragraphs 5 and 6 make clear that where the entity is the head of a group, compliance must be on a group basis and extend to non APRA regulated group entities. This may create tensions with foreign laws governing overseas subsidiaries, particularly where local laws restrict information sharing or structural changes.

The resolution planning obligations are separate from business continuity planning and operational risk management under other prudential standards, but will intersect with them. For example, the capabilities listed in paragraph 28 (governance, data, systems) may overlap with existing requirements under Prudential Standard CPS 220 Risk Management or CPS 231 Outsourcing.

There is no explicit interaction with the Corporations Act 2001 or corporate insolvency law, but resolution options (wind down, transfer, recapitalisation) may involve transactions that trigger directors’ duties or insolvent trading provisions. The standard does not override those laws; APRA’s resolution powers under the applicable Acts may provide some safe harbour, but that is not within the text of this standard.

The source text does not provide any amendment history. The standard commences on 1 January 2024 under paragraph 7. It was presumably made by APRA in late 2023. There are no amendments recorded in the provided text. This is consistent with it being a relatively new instrument. APRA may update it in future, but no amendments are evident from the source. Practitioners should check the current version on APRA’s website for any changes made after the provided text was captured.

The source text contains no references to any litigation, court decisions, or tribunal proceedings concerning this standard. Given its commencement date of 1 January 2024, it is too recent to have generated significant litigation. It is possible that challenges to APRA’s exercise of powers under the standard may arise in future, particularly around the breadth of APRA’s discretion to require structural changes or additional capital. However, the standard itself has not been tested in court as per the source. No cases are cited.

Broad and undefined SFI threshold for non RSE licensees. The definition of SFI in paragraph 11(f) is specified only for RSE licensees (assets over $30 billion or APRA determination). For ADIs, insurers, and private health insurers, the standard uses the term SFI but does not define it in this standard. It is unclear whether APRA will apply the same $30 billion threshold or use different criteria. Entities in those sectors cannot assume they are non SFIs based solely on asset size.

Non SFIs can be swept in by APRA determination. Even if an entity is not an SFI, paragraph 4 makes the standard applicable if APRA determines the entity provides a critical function. The definition of critical function (paragraph 11(a)) is broad - “important to financial system stability or the availability of essential financial services to a particular industry or community”. A small insurer covering a niche industry could be deemed critical. The entity has no right to challenge that determination in the standard.

The entity pays for APRA’s advisors. Under paragraph 31(a), APRA can require the entity to engage external advisors approved by APRA at the entity’s expense. This gives APRA effective control over the advisor relationship while the entity bears the cost. There is no cap on cost. Under paragraph 31(b), the entity must support external advisors engaged by APRA, again at entity’s cost. This could lead to large, unpredictable bills for professional services.

Pre positioning can force structural changes. Paragraph 24(a) allows APRA to require changes to organisational or legal structure, including location of shared services. This could require the entity to restructure legal entities, move functions between jurisdictions, or change how services are provided. These changes have significant commercial and tax implications, and the standard gives the entity no veto or compensation.

Loss absorbing capacity adjustments are open ended. Paragraph 27 allows APRA to adjust capital requirements for ADIs, insurers, life companies, and private health insurers. The amount is not capped by reference to risk or a formula. APRA could require capital far in excess of ordinary prudential minima, tying up resources that would otherwise be available for lending or investment.

Group obligations extend to non APRA entities. Paragraphs 5 and 6 require the head of a group to ensure the standard is applied appropriately throughout the group, including entities that are not APRA regulated. The entity is responsible for compliance by subsidiaries that may be in different jurisdictions or lines of business. There is no exception for entities subject to conflicting foreign laws.

Three year minimum review cycle but APRA can require more frequent reviews. Paragraph 32 sets a minimum of every three years for review of critical functions analysis and resolvability assessment, but APRA can determine a different period. The review must be done by operationally independent persons - likely external consultants at further cost.

Material change notification is vague. Paragraph 34 requires notification of material changes to business or operations that may create a barrier to resolution. There is no definition of material or barrier. Entities must self assess and may err on the side of over notification or risk under notification penalties.

No grandfathering or transition period. The standard commences 1 January 2024 and entities become subject following notification from APRA (paragraph 7). There is no phase in period mentioned in the text, though APRA may apply transitional measures via its notification process.

APRA can adjust prudential requirements if barriers not addressed. Paragraph 30 gives APRA the power to adjust prudential requirements (including capital) if barriers to resolution are not addressed or capabilities insufficient. This is a penalty without a formal enforcement process. It can increase capital costs without a direction or finding of breach.

Compliance is not a one off exercise; it is an ongoing process of engagement with APRA and internal capability building. The following steps are derived from the standard.

1. Determine applicability. Confirm whether the entity is an SFI or, if a non SFI, whether APRA has determined it provides a critical function. If neither, the standard does not apply (subject to APRA’s discretion under paragraph 12 or future determination). For RSE licensees, calculate total assets of RSEs operated; if under $30 billion and no APRA determination, the standard likely does not apply.

2. Engage with APRA on the resolution plan. Once APRA commences resolution planning, support APRA in developing the plan (paragraphs 13 15). Provide information, analysis, and access to personnel as requested. For entities with overseas operations, coordinate with APRA on cross border components.

3. Board oversight and senior executive roles. The Board must take ultimate responsibility (paragraph 16). Appoint a senior executive responsible for resolution planning. The Board must approve the resolvability assessment and pre positioning plan when they are developed (paragraph 17).

4. Critical functions analysis. If APRA requires, undertake analysis to determine critical functions, considering systemic impact, customer impact, and substitutability (paragraphs 18 19). Identify shared services that critical functions depend on.

5. Conduct resolvability assessment. If required by APRA (paragraph 20), conduct an assessment for each resolution option identified in the plan. Use personnel with appropriate skills and experience. Assess barriers, timelines, execution risks, and pre positioning measures (paragraph 21). If APRA requires an independent review, engage an approved reviewer at entity’s cost (paragraph 22).

6. Develop and implement pre positioning plan. If required (paragraph 23), produce a plan addressing structural changes, contract renegotiation, wind down plans, operational continuity, capabilities, and other barriers (paragraph 24). Implement the plan on APRA’s timeline.

7. Maintain financial resources and loss absorbing capacity. Ensure financial resources are sufficient to support the resolution plan (paragraph 26). For non RSE licensees, expect APRA to adjust capital requirements under the relevant capital standard (paragraph 27) - prepare for higher capital adequacy targets.

8. Build and maintain capabilities. Establish resolution governance arrangements, operational capabilities, financial management processes, data and systems, and a restructuring plan if appropriate (paragraph 28). APRA may require additional capabilities (paragraph 29). If capabilities are deficient, APRA can adjust prudential requirements (paragraph 30).

9. Engage external advisors if required. If APRA directs, engage approved external advisors at entity’s expense (paragraph 31(a)). Consult with APRA on terms of engagement. Ensure advisors are available to meet with APRA. Provide all reports (including drafts) to APRA. Alternatively, support advisors engaged by APRA (paragraph 31(b)).

10. Triennial review and updates. At least every three years (or as APRA determines), review and update the critical functions analysis and resolvability assessment (paragraph 32). Use operationally independent, experienced, competent persons. Submit a report to APRA promptly. The review must recommend changes to the pre positioning plan, resources, and capabilities (paragraph 33).

11. Monitor for material changes. Notify APRA of material changes to business or operations that could create a barrier to resolution (paragraph 34). This is an ongoing obligation.

12. Document everything. Maintain records of assessments, plans, reviews, reports, and communications with APRA. The standard does not explicitly require record keeping, but it is implicit given the approval and review requirements. Good documentation will be essential if APRA challenges compliance.

13. Budget for cost. Compliance is expensive: external advisors, independent reviewers, legal restructuring, additional capital. The standard provides no compensation or subsidy. Entities should allocate budget in line with APRA’s requirements.

14. Seek APRA adjustments if needed. If specific requirements are unduly burdensome, seek an adjustment or exclusion under paragraph 12. There is no guarantee, but APRA has discretion.