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Superannuation (prudential standard) determination No. 1 of 2012

Prudential Standard SPS 114 Operational Risk Financial Requirement

Superannuation Industry (Supervision) Act 1993

I, Ross Jones, delegate of APRA, under subsection 34C(1) of the Superannuation Industry (Supervision) Act 1993 (the Act), DETERMINE Prudential Standard SPS 114 Operational Risk Financial Requirement in the form set out in the Schedule, which applies to all RSE licensees.

This instrument commences on 1 July 2013.

Dated: 15 November 2012

[signed]

Ross Jones
Deputy Chair

Interpretation

      In this instrument:
APRA means the Australian Prudential Regulation Authority.
RSE licensee has the meaning given in section 10(1) of the Act.

Note 1 It is a condition imposed on all RSE licences that the RSE licensee and, if the RSE licensee is a group of individuals, each of the members of the group, must comply with the RSE licensee law [section 29E(1)(a)]. RSE licensee law includes the prudential standards [section 10(1)]. APRA may direct an RSE licensee to comply with a specified condition of its RSE licence by a specified time if APRA has reasonable grounds to believe that the RSE licensee has breached the condition [section 29EB]. A failure to comply with a direction may lead to cancellation of the RSE licence [section 29G] and may be an offence attracting a penalty of 60 penalty units [section 29JB].

Schedule

Prudential Standard SPS 114 Operational Risk Financial Requirement comprises the 8 pages commencing on the following page.

Prudential Standard SPS 114

Operational Risk Financial Requirement

Objectives and key requirements of this Prudential Standard

This Prudential Standard establishes requirements for an RSE licensee to maintain adequate financial resources to address losses arising from operational risks that may affect registrable superannuation entities within its business operations.

The Board of an RSE licensee is ultimately responsible for ensuring that it holds, and has unfettered access to, financial resources in the form of operational risk reserve(s), operational risk trustee capital or a combination thereof to meet the target amount of financial resources that the RSE licensee determines is necessary to respond to these losses (ORFR target amount).

The key requirements of this Prudential Standard are that an RSE licensee must:

     * have a documented strategy that sets out the RSE licensee's approach to determining, implementing, managing and maintaining the ORFR target amount;
     * have suitable policies and procedures to manage the financial resources held to meet the ORFR target amount;
     * determine a tolerance limit below the ORFR target amount that, if financial resources 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