Have your say on the new Financial and Prudential Standards
Happy new year! 2025 is shaping up to be an important year for the aged care sector, as we prepare for the introduction of the new Aged Care Act in July.
The new Act gives the Commissioner the authority to set Financial and Prudential Standards (the F & P Standards).
The Commission’s public consultation on the draft new F & P Standards will start on Tuesday 18 February 2025. A webinar on the same day will walk providers through the new Standards and provide practical advice to help them prepare. You can register for the webinar on our webpage.
This is your opportunity to review the draft Standards and give feedback that will help shape the final version and our guidance. We encourage all providers to take part.
The proposed new Standards simplify the current framework by replacing 4 Standards (Liquidity, Governance, Records and Disclosure) with 3 updated, focused Standards:
Liquidity Standard
- Requires providers to maintain enough liquid assets so they can meet their financial responsibilities, refund deposits and manage risks effectively. Liquid assets are assets that can be quickly turned into cash.
Financial and Prudential Management Standard
- Makes sure registered providers have governance systems and strategies to manage their organisation in a financially sound way.
- Requires providers to make financial and prudential decisions that are fair, reasonable and in the best interests of people receiving care.
Investment Standard
- Makes sure the organisation chooses, manages and monitors investments responsibly, including how they invest refundable deposits.
- Requires providers to develop and follow a strong investment management strategy so they can deliver safe, high-quality aged care services and protect refundable deposits.
- Now applies to all registered providers of residential care, not only those holding refundable deposits.
What’s changing?
The new F & P Standards will be familiar to most providers, as the obligations are similar to the current Standards.
The key changes include:
- an enforceable minimum liquidity amount for all residential aged care providers, based on their circumstances
- increasing the number of providers that are required to meet the Standards. For the first time, home care service providers will also need to meet the Standards, specifically the Financial and Prudential Management Standard.
Providers that need to meet the new Standards include those delivering:
- personal care and support in home or community settings
- nursing services
- transition care
- residential care.
The set minimum liquidity amount
The proposed new Liquidity Standard will require all residential aged care providers to calculate and maintain their minimum liquidity amount using a formula. This includes providers that don’t hold refundable deposits.
The enforceable minimum liquidity amount aims to manage 2 risks:
- the risk that a residential provider won’t be able to refund refundable deposits when they’re due
- the risk that a residential provider isn’t able to manage periods of financial stress resulting from a shortfall in their expected cash inflows, or an unexpected increase in their cash outflows. These can cause providers to make spending decisions that affect the quality and safety of care.
To decide on a suitable minimum liquidity amount, the Commission received external actuarial (statistical calculating of risk) advice. The advice confirmed the minimum amount will address the risks above without unnecessarily locking up capital that providers can reinvest to improve their care.
Our compliance approach
We know that there will be some providers, based on our analysis of quarterly financial reports, that won’t seem to be meeting the Standard but aren’t a liquidity risk. It’s because they have access to the liquidity they need in other ways. For example, through third-party arrangements that they don’t include in their quarterly financial reporting. Where we’re satisfied those arrangements are strong enough, we may:
- apply a condition of registration to maintain supervision of these arrangements
- need providers to report any changes to their arrangements that might increase their level of risk.
We will only take formal regulatory action where providers don’t have a reasonable plan and a commitment to meeting the Standard.
We have analysed multiple quarters of financial data to understand which providers are currently operating below the minimum liquidity amount. We are already monitoring these providers through our Financial Viability Monitoring Program.
We hope this summary ahead of the formal consultation will help providers prepare for the new F & P Standards. We encourage you to attend the webinar, review the draft Standards when we release them in February, provide feedback and begin preparing for July 1, 2025.
Until next time…
