Life Insurance (prudential standards) determination No. 14 of 2007 - Prudential Standard LPS 510 - Governance
Compliance Committee for eligible foreigCompliance Committee for eligible foreign life insurance companies
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is a substantial shareholder[20] of the life company or an officer of, or otherwise associated directly with, a substantial shareholder of the life company;
is employed, or has previously been employed in an executive capacity by the life company or another group member, and there has not been a period of at least three years between ceasing such employment and serving on the Board;
has within the last three years been a principal of a material professional adviser or a material consultant to the life company or another group member, or an employee materially associated with the service provided;
4. is a material supplier or customer of the life company or other group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer; or
has a material contractual relationship with the life company or another group member other than as a director.
Attachment B
Compliance Committee for eligible foreign life insurance companies
Purpose of the Compliance Committee
The purpose of the Compliance Committee (the Committee) is to:
(a) ensure the EFLIC complies with the requirements in, or imposed under, the Act; and
(b) assist the Board in meeting its responsibilities under the Act.
As required by subsections 16ZF(1) and (4) of the Act, the Board must delegate sufficient powers of management to the members of the Committee to enable Committee members to ensure that the EFLIC complies with the requirements in, or imposed under, the Act. The Board must do so irrespective of anything to the contrary in the EFLIC’s constitution.
Continuing responsibility of the Board
Establishment of the Committee does not free the Board from ultimate responsibility for ensuring the Australian branch of the EFLIC complies with the requirements in, or imposed under, the Act.
In recognition of this, the Board must:
(a) have the power to appoint and remove, at its discretion, members of the Committee, as long as certain composition and residency requirements pertaining to the Committee continue to be met (refer paragraphs 5 to 8);
(b) ensure that the delegation of relevant managerial powers (of the kind referred to in paragraph 16ZF(1)(a) and (b) of the Act) is not irrevocable, and that the Board retains the powers delegated; and
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(c) establish adequate procedures for monitoring and supervising the operation of the Committee, as well as assessing its performance.
Composition and residency status of Committee members
The Committee must comprise of at least five members appointed by the Board. Those members must include:
(a) at least one director of the Board of the EFLIC;
(b) the Principal Executive Officer (PEO) appointed by the EFLIC for its Australian branch under either subsections 20(2) or 246(4) of the Act; and
(c) at least two independent members.
A member cannot satisfy more than one of the composition requirements contained in subparagraphs 5(a), 5(b) and 5(c) (i.e. the director, PEO and independent members must all be separate individuals).
At least two of the Committee members must be ordinarily resident in Australia, one being the PEO and the other an independent member.
It should be noted that the definition of director contained in the Act, in relation to an EFLIC, is taken to refer to both members of the Committee and the directors of the EFLIC (except for certain provisions, notably sections 230B and 245 of the Act, where only Committee members are being referred to).
Application for a modified Committee composition
APRA may, on written application from an EFLIC, determine a modified Committee for the EFLIC where it can be demonstrated that it is appropriate to do so.
In making this determination, APRA will take into account the following factors:
(a) the quantum of liabilities written by the EFLIC;
(b) the cost effectiveness or otherwise of establishing a Committee;
(c) any restrictions on the lines of business written by the EFLIC;
(d) whether these restrictions limit the number of policyholders of the EFLIC (for example, by targeting specific policyholder characteristics, such as age, nationality or geographical location); and
(e) whether the EFLIC has written any material amount of long tail business.
The composition of any modified Committee would be determined in writing on a case by case basis by APRA, but the possible modifications could take one or more of the following forms:
(a) a Committee with fewer than five members;
(b) replacing the director of the Board of the EFLIC as required by subparagraph 5(a) with the PEO; or
(c) a Committee with fewer than two independent members.
Appointment and removal of Committee members
The power to appoint and remove members of the Committee resides with the Board.
The Board must have appointed all members and formally constituted the Committee within seven days of receiving notification of registration.
Each member of the Committee must be fit and proper for the role.
(Note: The requirements for fitness and propriety are set out in Prudential Standard LPS 520 Fit and Proper Requirements).
The Board must ensure that the Committee as a whole possesses the necessary skills and expertise to ensure that the EFLIC complies with the requirements in, or imposed under, the Act, and to discharge the duties and responsibilities of the Committee provided for in this Prudential Standard.
The Committee must have a policy for dealing with conflicts of interest.
Notwithstanding the Board’s power to appoint and remove members, APRA may, under section 230B of the Act, direct an EFLIC to remove a member of the Committee.
While membership of the Committee is the responsibility of the Board, the powers to appoint and remove members of the Committee must not be used in a manner that impedes, discourages or otherwise hinders the Committee from discharging its duties and responsibilities. Examples that would be cause for concern by APRA would be an excessive turnover of members, or the removal of members at inappropriate times (for example at critical reporting periods). If requested to do so, by APRA, an EFLIC must, within a time stipulated by APRA, in writing (which must not be unreasonable), provide a written report to APRA responding to any queries APRA has regarding the removal of members.
Processes of the Committee
At least three members of the Committee are required to be present at a meeting of the Committee to form a quorum. The PEO, and at least one independent member who is ordinarily resident in Australia, must be amongst the three members present.
The chairperson of the Committee must be a non-executive member.
Resolutions can only be passed by a majority with the chairperson having a casting vote.
The Committee must meet as often as required to discharge its duties and responsibilities, although APRA would expect the Committee to meet on at least a quarterly basis. Members, and individuals who may be needed to address the Committee, must be given reasonable notice of pending meetings.
The Committee must ensure that the Appointed Actuary is given reasonable notice of any meeting of the Committee at which matters are to be considered that relate to the functions and duties of the actuary, including matters:
(a) that relate to, or may affect:
(i) the solvency of the company; or
(ii) the adequacy of the capital of the company; or
(b) that relate to advice given by the appointed actuary to the
directors; or
(c) that concern a matter in relation to which the appointed
actuary will be required to give advice.
Written minutes of Committee meetings must be taken and copies kept and made available to APRA on request. Any papers or submissions put to the Committee must likewise be kept and made available to APRA on request.
Duties and responsibilities of the Committee
The Committee must, with the powers delegated to it by the Board, ensure that the EFLIC complies with:
(a) the Act;
(b) the Life Insurance Regulations 1995;
(c) the prudential standards determined under section 230A;
(d) the prudential rules made under section 252;
(e) any conditions placed upon the EFLIC under section 22 at the time, or after, of its registration;
(f) directions given under the Act; and
(g) the Financial Sector (Collection of Data) Act 2001.
The Committee members must report to APRA, within 14 business days, of becoming aware:
(a) that the EFLIC has failed to comply with a requirement referred to in paragraph 25; or
(b) the Committee believes there is a material risk of the EFLIC being unable to meet its obligations at some future time.
The report must:
(a) be in the form of a written report explaining the causes of the failure or the material risk to the solvency of the EFLIC identified by the Committee; and
(b) outline a plan and timeframe for rectifying the failure or mitigating the risk of insolvency.
APRA would expect the Committee to provide a copy of the report to the Board.