LAWFUEL – Australia Law, Law Jobs – APRA released its finalised prudential standards – LPS 231, GPS 231, APS 231 and guidance – PPG 231 on outsourcing for life insurers, general insurers and authorised deposit-taking institutions on 6 October 2006,. This package has been revised following industry comment on its March 2006 version of the package.
Subject to transition arrangements, these prudential standards take effect from 1 January 2007.
How have the requirements changed?
APRA has largely tightened up and clarified the wording of LPS 231 from its March 2006 version. Of note, outsourcing agreements must now:
have specific commencement and end dates
include document review provisions; and
include an indemnity, which ensures that any subcontracting by a third party service provider of an outsourced function will be the responsibility of the third party provider, including any loss for the subcontractor’s failure.
A life insurer is not required to document an outsourcing agreement with a related body corporate unless APRA notifies the life insurer that it must evidence an outsourcing agreement in writing or another prudential standard requires it.
APRA has said in PPG 231 that any legal advice obtained to assess an outsourcing agreement could include due diligence undertaken prior to execution of the agreement to ensure that there are no legal impediments to APRA’s access to information for the purpose of its prudential supervision of the life insurer’s activities. In order to ensure that APRA will be satisfied on this point, a ‘review and audit’ clause should be inserted into all outsourcing agreements.
Minter Ellison can help you understand how your company will be affected by the revised outsourcing package and assist you in satisfying its requirements.