The Australian Prudential Regulation Authority (APRA) has put some major superannuation funds on notice over the inappropriate labelling of investment options.
The funds have been caught investing in the same types of products that led to the Global Financial Crisis in 2008.
In a letter written by APRA’s deputy chairman, Helen Rowell, the regulator called out fund trustees after a review “identified examples in the industry where ‘cash’ investment options appear to include exposure to underlying investments that would not generally be considered cash or cash-like in nature”.
Cash options are generally favoured by retirees concerned about having their savings eroded.
APRA says the cash description needs to be more easily understood by fund members.
“Under the reasonable expectations principles as set out in SPS 530 Investment Governance, APRA considers that a superannuation fund member would understand that exposure to a ‘cash’ investment option or product will be readily accessible (for withdrawal or transfer) without change in value,” states the letter.
“Cash equivalents represent short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.”
It said that assets that APRA had observed forming part of cash options underlying investments included asset-backed and mortgage-backed securities, commercial bonds and hybrid debt instruments, credit-default swaps, loans and other credit instruments.
The APRA letter noted that some funds were mislabelling asset-backed and mortgage-backed securities as cash, as well as commercial bonds, credit-default swaps, loans and other credit instruments.
“These assets do not typically exhibit the characteristics necessary to be considered as cash or cash equivalent,” APRA said.
APRA will continue to monitor superannuation funds and require trustees to review their investment policies. The regulator did not say which funds received the letter.
Read more at www.moneymanagement.com.au
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