The prudential regulator says it will proceed with the requirement for independent certification of related party insurance arrangements as part of its proposed revisions to draft prudential standard SPS 250 Insurance in Superannuation.

However, the plan to mandate independent certification of priority and privilege insurance arrangements will be dropped in recognition that the measure may result in “unintended consequences”, the Australian Prudential Regulation Authority (APRA) said.

“Industry feedback has indicated that the majority of insurance arrangements across the industry could fall within the definition of priority and privilege arrangements,” the regulator said in a letter to registrable superannuation entity (RSE) licensees.

“Therefore it is important that RSE licensees ensure that the risks that arise from such contracts are appropriately identified and managed.”

APRA says the letter clarifies its intended position on the proposed independent certification of certain insurance arrangements, specifically related party arrangements and those that include priority and privilege terms.

In January the regulator undertook further consultation of its proposed revisions to the draft SPS 250 prudential standard and draft prudential practice guide SPG 250 Insurance in Superannuation.

The key proposed changes to the standard address two recommendations from the Hayne royal commission regarding independent certification of related party insurance arrangements and priority and privilege arrangements, and that the rules for status attribution for a beneficiary are fair and reasonable.

The regulator intends for the revised prudential standard to take effect from July 1 next year.

It says it is in the process of finalising the amendments to SPS 250 and draft prudential practice guide SPS 250 Insurance in Superannuation.

Click here to access the letter.