APRA has published a letter it sent to all authorised deposit-taking institutions, general insurers and life companies clarifying its views on the role of the board.(Background).
In response to submissions which suggested that the use of certain language in prudential standards (for example, the phrase ‘the board and senior management’) may create the impression boards are expected to assume responsibilities that would normally be assigned to management, APRA says that its approach to supervision is built on the premise that the board and management are primarily responsible for an entity’s financial soundness and prudent risk management.
APRA says that it imposes various requirements and duties on boards, in addition to those that apply to all entities under the Corporations Act 2001. However, in meeting the additional obligations imposed under APRA’s prudential framework, APRA does not expect that the board will take on responsibilities that fall within the province of management under generally accepted practice. APRA therefore intends to review the clarity of its requirements of boards in the prudential standards, to ensure that the language used appropriately reflects the respective roles of the board and management.
In response to submissions which suggested it is often unclear across APRA’s prudential standards when a board is able to delegate a matter to a board committee or management, APRA says that where a board is assigned a specific responsibility under a prudential standard, the board is not able to delegate its responsibility for ensuring that matter is adequately addressed.
However APRA says that the process followed, and the advice, input and support needed by the board to meet these responsibilities, remain a matter for the board to determine.
APRA has confirmed that “if the board has been assigned specific responsibility for the matter in APRA’s prudential standard then, even after a board has referred certain functions to management, the board retains the responsibility to satisfy itself that the matter has been properly addressed”.
