Document ID: chunk:federal_register_of_legislation:F2012L02221:body:0:p2
Version: federal_register_of_legislation:F2012L02221
Segment Type: other
Provision Reference: 
Character Range: 2764–5822

held to meet the ORFR target amount were to breach this limit, would require the RSE licensee to notify APRA and implement a replenishment plan; and
     * ensure that the financial resources held to meet the ORFR target amount are only used to address an operational risk event or to ensure that the ORFR target amount remains at an appropriate level.

Authority
     1. This Prudential Standard is made under section 34C of the Superannuation Industry (Supervision) Act 1993 (SIS Act).

Application
    2.             This Prudential Standard applies to all registrable superannuation entity (RSE) licensees (RSE licensees) under the SIS Act.[1]

    3.             All RSE licensees must comply with this Prudential Standard in its entirety, unless otherwise expressly indicated.

    4.             The requirements of this Prudential Standard apply for the purposes of section 52(8)(b) of the SIS Act.

    5.             This Prudential Standard commences on 1 July 2013 (effective date).

Operational risk financial requirement
6.             For the purposes of this Prudential Standard, an 'operational risk' is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. This definition includes legal risk but excludes strategic and reputational risk.
7.             For the purposes of this Prudential Standard, an 'operational risk event' is an operational risk that has:
       (a)          materialised; and
       (b)          caused one or more beneficiaries in an RSE to sustain a loss, or to be deprived of a gain to which they otherwise would have been entitled, in relation to their benefits in that RSE.
8.             An RSE licensee must determine a target amount of financial resources to address the operational risks of the RSE licensee's business operations.[2] This target amount must reflect the size, business mix and complexity of the RSE licensee's business operations and, at a minimum, include:
       (a)          an amount that the RSE licensee determines is necessary to address operational risks that it has identified in its risk management framework having taken into account the RSE licensee's risk appetite and appropriate risk mitigations and controls.[3] This amount must reflect any uncertainty in the scale of losses; and
       (b)          an additional amount that the RSE licensee determines is required for operational risks that have not been specifically identified in its risk management framework.
For the purposes of this Prudential Standard, the target amount determined in this paragraph is referred to as the operational risk financial requirement (ORFR) target amount (ORFR target amount) of the RSE licensee.
9.             The ORFR target amount must be approved by the Board of the RSE licensee (the Board).[4]
10.         An RSE licensee must determine a tolerance limit below the ORFR target amount (tolerance limit) that reflects the level below which the RSE licensee must take action to replenish financial resources held