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Financial and Prudential Regulatory Insights – October 2023

Peter Edwards, Executive Director, Financial and Prudential Regulation

Insight from Targeted Reviews

In my September post, I discussed the Commission’s targeted review program and how it helps us raise provider awareness of financial and prudential obligations. This month, I’d like to share with you some observations from a review which focused on investment strategies.

As you know, the Prudential Standards are crucial in ensuring that refundable accommodation deposits (RADs) are safely managed. One of the prudential obligations is that providers should invest RAD funds in specific financial products while maintaining a written Investment Management Strategy (IMS). An IMS should inform provider decision-making, risk assessment, liquidity management and their responses to changing financial conditions. 

Between April and June 2022, the Commission conducted a targeted review of approved providers who declared using refundable deposit balances to invest in financial products in the previous 3 Annual Prudential Compliance Statement (APCS) submissions. The aim was to educate and raise awareness among approved providers on specific prudential standards, with a particular focus on the following:

  • IMS compliance
  • RADs
  • Governance arrangements
  • Liquidity management

Our findings were encouraging, with all providers we worked with throughout the targeted review demonstrating a high level of compliance with IMS obligations. It was also clear that many providers had sought external expertise to guide their IMS development. We were pleased to see that where providers sought external advice and support, the board and senior management remained actively engaged in the process and ongoing performance of their IMS.

However, there were areas where we found compliance could be improved. Some providers failed to document essential governance decisions. We also discovered some providers who were unable to provide evidence that they were assessing their IMS on a regular basis and did not adequately document factors influencing minimum liquidity.

While the targeted review highlighted areas for improvement, we were reassured that the level of compliance within the cohort we targeted did not reveal a level of risk that would prompt us to consider taking regulatory action. We will continue to prioritise education and support in the following areas:

Financial governance controls: examine them regularly to ensure they align with your organisation's mission and address financial viability challenges.

Documented systems and processes: ensure your documents reference the applicable legislative requirements. 

Financial management: clearly segregate operational funds from RAD payments, which must only be used for permitted purposes. 

Moving forward, the Commission will share Insights Reports for each of our targeted reviews. These reports will provide the sector with key learnings and takeaways and for providers to help develop a better aged care sector for consumers. We look forward to collaborating with you and sharing our findings over the coming months.

Until next time… 

Peter Edwards

Executive Director, Financial and Prudential Regulation 


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