Regulator orders super to shape up

The regulator has thrown down the gauntlet to superannuation funds, instructing them to produce better quality outcomes for members.

In a revised draft set of rules released on Wednesday, the Australian Prudential Regulation Authority (APRA) will direct super funds to “identify and work towards addressing any deficiencies between existing practices and the new requirements” throughout 2019.

APRA suggested there had been little engagement from the industry during the consultation period for the revised rules. Further, with the exception of one organisation, no funds had wanted to discuss with APRA their likely compliance costs under the new regime.

APRA’s public consultation was open for 15 weeks during which 15 public and two confidential submissions were received, and a number of roundtable discussions were held with industry representatives.

The regulator had invited all fund respondents to assess their compliance costs using the Commonwealth Regulatory Burden Measure “to ensure the data supplied to APRA could be aggregated and used in an industry-wide assessment”.

“Ultimately, none of the respondents made use of this tool, and only one respondent provided an assessment of the likely costs that would be incurred in relation to the full proposal,” APRA said.

Each year, funds will be expected to benchmark and evaluate their performance “in delivering sound, value-for-money outcomes for all members” in both MySuper and other products.

APRA deputy chairman Helen Rowell said the regulator was committed to lifting standards across the industry for the long-term benefit of superannuation members.

“As the prudential regulator, APRA’s primary focus is on the sound and prudent management of the $1.8 trillion APRA-regulated segment of the superannuation industry; that includes seeking to ensure that registrable superannuation entity (RSE) licensees meet their obligations to put their members’ interests first,” Ms Rowell said.

“These changes to the prudential framework set a higher bar for RSE licensees by requiring a robust assessment of the outcomes delivered for members to be reflected in their strategic and business planning.”

APRA’s final package requires super funds to meet strengthened requirements for strategic and business planning, including management and oversight of fund expenditure and reserves.

The new rules, known as SPS 220 and SPS 515, are due to be enforced from 1 January 2020. Before then, funds will be required to:

  • undertake gap analysis of existing practices against business planning and expenditure management requirements in SPS 515
  • address gaps
  • design outcomes assessment
  • discuss with APRA draft design of outcomes assessment
  • plan to undertake first outcomes assessment in conjunction with 2020 annual reviews of business plans

From 1 January 2020, the funds will need to ensure spending decisions meet new requirements, undertake outcomes assessment and review and refine business plans.

APRA said it would require super funds “to take into account a broad range of factors when assessing the outcomes assessment metrics” in addition to net investment returns.

“These new policy proposals address weaknesses in the current superannuation regulatory framework and would greatly assist APRA in driving the superannuation industry towards addressing underperformance and improving member outcomes,” Ms Rowell said.

“In the first year APRA supervisors will look for reasonable efforts by RSE licensees (super funds) to conduct the assessment in a comprehensive way and align it with their business planning processes.”

The new rules are consistent with the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No.1) Bill 2017 now before Parliament.

Do you think APRA’s new rules go far enough to guarantee that super funds put members’ interests first?

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Written by Olga Galacho

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