Document ID: chunk:federal_register_of_legislation:F2023L00690:reg:7:p7
Version: federal_register_of_legislation:F2023L00690
Segment Type: reg
Provision Reference: reg 7 (pt 7/9)
Character Range: 44684–47743

effect, this allows the regulated institution to treat its own balance sheet and that of the approved related entity as a single entity for the purpose of calculating the Asset Risk Charge.

     4. In deciding whether to approve an entity as part of a regulated institution's ELE, APRA will have regard to the following criteria in respect of the relationship between the regulated institution and the related entity:

       (a)          the related entity must be wholly owned and controlled by the regulated institution, with a Board of directors/trustees that is comprised entirely of members of the regulated institution's Board or senior management;

       (b)          the regulated institution must demonstrate to APRA that there are no legal or regulatory barriers (e.g. restrictions imposed by law or a regulator in a foreign jurisdiction) to the transfer of the assets back to the regulated institution;

       (c)          the regulated institution's risk management systems and controls must apply fully to the operations of the related entity. The senior management of the regulated institution must be in a position to monitor the operations of the related entity to the same extent as the operations of the regulated institution itself. Systems for monitoring and maintaining control over the related entity must be included within the internal and external audit programs of the regulated institution;

       (d)          the regulated institution must be able to furnish stand-alone accounting records for the related entity and provide APRA with full and unfettered access to this information at any time (including during on-site visits);

       (e)          where the related entity holds or invests in assets on behalf of the regulated institution, the related entity must have no material third party liabilities, other than exempt tax liabilities and employee entitlements;

       (f)           where the related entity borrows on behalf of the regulated institution, all funds must be on-lent directly to the regulated institution; and

       (g)          the related entity must not conduct any business that the regulated institution would otherwise be prevented from conducting under the Act.

Attachment D – Level 2 insurance groups
     1. The following adjustments to the methodologies and calculations in this Prudential Standard must be applied by the Level 2 insurance group:

Tax benefit
       (a)          Level 2 insurance groups may recognise tax benefits as a deduction from the Asset Risk Charge if tax legislation allows them to be absorbed by the existing deferred tax liabilities within the Level 2 insurance group. However, a Level 2 insurance group must not recognise tax benefits whose value is contingent on the tax benefits being absorbed by deferred tax liabilities of entities outside the Level 2 insurance group;

Currency stress
       (b)          Level 2 insurance groups must make all consolidation adjustments for intra-group arrangements before applying the currency stress outlined