The policy framework:

• expands the range of organisational structures which conglomerates may adopt. In particular, the framework specifies arrangements for the use of non-operating holding companies (NOHCs) to head groups containing an ADI;
• liberalises the range of activities that can be carried out within a conglomerate group containing an ADI. This includes permitting an ADI to be a member of a conglomerate group which includes non-financial businesses; and
• provides a workable, and consistent, prudential supervision framework within which these new arrangements can take place.

The policy framework addresses the following issues:

• membership of a conglomerate group, including ownership and structure;
• risks arising from associations between ADIs and other members of conglomerate groups, including non-regulated entities;
• composition of Boards in NOHCs and in associated ADIs;
• application of "fit and proper" tests for Board members and senior management of conglomerate groups;
• issues associated with group relationships (branding of financial products, sharing of infrastructure, etc); and
• the desirability of a group-wide focus on risk and risk management in a conglomerate.

The policy framework has been issued following extensive industry consultation based on Policy Discussion Papers on the supervision of conglomerates issued by APRA in April and November 1999.

The consultation process revealed broad agreement with the thrust of the conglomerates policy proposals contained in the Discussion Papers, in particular, the increasing need for a group-wide emphasis on the supervision of conglomerates. However, concerns were expressed - mainly by existing market players - about some of the specific proposals, and on how some of the proposals would be applied in practice. These were mainly related to the measurement of ADI and group capital and proposed limits on intra-group credit exposures.

The policy framework now implements all parts of the conglomerates policy proposals, except those associated with the determination of group and "ADI stand-alone" capital adequacy and intra-group and group exposure limits. These issues have been set aside pending further analysis and discussion with industry and a closer examination of policies in other countries. This process should be completed by the end of the year. For the interim, existing policies governing capital adequacy and large exposures will continue to apply. We expect that discussion papers detailing the proposed further analysis, and the policy proposals which may emerge, will be released before the end of 2000.

At this stage, the policies contained in the framework are in the form of guidelines, but they will eventually be incorporated into prudential standards issued under the Banking Act 1959. This process will commence around the middle of 2000. When introduced, there may be instances where some institutions do not comply with all of the new requirements. Institutions in this position may approach APRA and reasonable transition arrangements will be negotiated.

Policies relating to the types of conglomerate group in which ADI activities are permitted will have immediate application.