1. Outsourcing Arrangements John Sudano, Senior Associate Hall & Wilcox, Lawyers

2. Outsourcing Prudential Standard (SPS 231) Came into full force from 1 July 2013 Applies to outsourcing of material business functions Outsourcing is common in the superannuation industry SPS 231 deals with requirements a trustee must satisfy before and after entering into an outsourcing agreement

3. Material outsourcing In a nutshell, a business activity is ‘material’ if it has the potential to have a significant impact on the trustee’s business operations, the interests or reasonable expectations of beneficiaries etc if disrupted Typically: – Administration agreements – Insurance administration agreements – Investment management agreements – Custodial agreements – Promoter agreements APRA envisages that where uncertain whether an agreement involves outsourcing a material business activity trustees should treat the business activity as material.

4. Drafting tips and traps Comparing old requirements and new requirements [main differences are in italics below] Use a checklist of content requirements in SPS 231 and complete when you review an agreement and send to proposed service provider with recommended changes

5. Drafting tips and traps Agreement must be signed by all parties before the arrangement commences State scope and services to be provided - clearly describe the deliverables and related service standards Start and end dates Default arrangements and termination provisions – consider notice period and transitioning Dispute resolution arrangements – ensure arrangement is certain

6. Drafting tips and traps Liability and indemnity provisions – limit to trust property and service provider is liable for subcontractors Insurance - for example whether the service provider has adequate professional indemnity insurance Confidentiality, privacy and security of information Content and frequency of reports to be provided by the service provider – regular reporting to the trustee should be required given requirement to manage outsourcing relationships

7. Drafting tips and traps Pricing and fee structures Audit and monitoring procedures, service level and performance requirements and review provisions – trustee and auditors to have ability to inspect and access all documents relating to the agreement. Include service standards for each deliverable Business continuity management – trustee should be able to request a copy of the service provider’s BCP and should be given a copy of the report of the annual BCP test conducted by the service provider

8. Drafting tips and traps Address the form in which data is to be kept, identify ownership and control of data – where relevant, provide for the return of fund data to the trustee Address subcontracting and require the service provider to accept responsibility for the actions of any subcontractor Allow APRA access to documentation and information related to the outsourcing arrangement Service provider must cooperate with APRA’s requests for info and assistance and the agreement must provide the right to conduct on-site visits

9. Drafting tips and traps It is advisable although not critical to include a clause where a service provider agrees to not disclose or advertise that APRA has conducted an on-site visit Provide for any outsourcing to an offshore provider (including through a sub-contractor) if relevant – it is suggested that the service provider be required to obtain the trustee’s prior approval before subcontracting offshore

10. Insurance arrangements Insurance policies themselves are not outsourcing arrangements Service level agreement related to services provided by insurers in making insured benefits available may be material outsourcing arrangements There are therefore times insurance arrangements must comply with both SPS 250 and SPS 231.

11. Privacy clauses Australian Privacy Principles (APPs) not the old National Privacy Principles. It is critical that where any personal information is to be disclosed offshore the offshore party is required to comply with the APPs in handling the personal information.

12. Disclaimer Information in this presentation is current as at 8 October 2014. This presentation includes information about drafting outsourcing agreements. It is not, however, to be used or relied upon as a substitute for professional advice. Before acting on any matter in the area, you should discuss matters with a professional adviser.