APRA welcomes proposals to address ‘weaknesses’ in super regulation

By Lucy Dean

October 12 2017
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The Australian Prudential Regulation Authority has welcomed a series of bills promoting “enhanced directions power” for the body, arguing that the bills address areas that “warrant strengthening”.

APRA, welcomes proposals, super regulation,

Appearing before a Senate hearing earlier this week, deputy chairman at APRA, Helen Rowell said the prudential regulator welcomes the proposals in three bills designed to strengthen trustee arrangements and improve accountability and member outcomes in super.

“Some of the proposals, such as the enhanced directions power for APRA and provision for APRA to approve changes of ownership of trustees, were identified as necessary in the aftermath of the Trio collapse in 2009,” Ms Rowell explained.

“Other proposals, such as those related to MySuper authorisation and cancellation, the broadening of the MySuper scale test, and enhanced reporting on expenditure, address areas that APRA believes warrant strengthening based on our supervision activities following implementation of the Stronger Super reforms in 2012/13.”

Ms Rowell said “enhanced supervisory powers” would grant APRA directions powers in line with its regulatory powers in other APRA-regulated industries and sectors.

“At present, APRA is limited to taking action where a trustee has already breached the law, rather than being able to intervene to prevent the breach,” Ms Rowell said.

Currently, APRA can authorise entities that wish to operate as superannuation trustees, however there is no requirement for APRA approval should the ownership change after authorisation, Ms Rowell noted.

“This makes it difficult for APRA to prevent a change of ownership that may adversely impact the interests of fund members,” she said.

Replacing the MySuper ‘scale test’ with one that measures outcomes is also considered a welcome proposal. Responding to questioning by the chair, Senator Jane Hume, Ms Rowell said the changes to the MySuper test were about “focusing on all of the elements that deliver sound outcomes to members”.

She continued: “There is not necessarily a direct link between size and outcome. The current test focuses on size, but it’s not scale and size alone that will deliver good outcomes for members.”

The bills also remove loopholes that, following the initial MySuper authorisation process in 2012/13, made it difficult for APRA to refuse to authorise products, even if the body had concerns about the products’ investment strategies or fee structures.

“The proposals in the bill will enable APRA to require any such concerns to be addressed before a MySuper product is authorised. Similarly, APRA will have greater ability to cancel authorisation of MySuper products that are not meeting the legislative requirements,” Ms Rowell said.

Responding to questioning from the chair about the bills’ proposals for superannuation boards to have one-third of directors be independent, Ms Rowell said the arrangement would “improve decision-making and the management of conflicts”.

The chair noted that the senate committee hearing had had “contentious debate” over the topic and put to Ms Rowell that “independent directors potentially would slow down the merger activity of those smaller, subscale funds because independent directors have a vested interest in them”.

Deflecting the suggestion, Ms Rowell said: “We have seen no evidence of that. In fact, our experience to date would be that there seems to be more resistance in the industry-fund space around differences of view about composition of board and entitlement to board seats than we have seen in the retail sector with independent directors.”

She continued: “The reality is that there’s been a relatively limited number of mergers in any sector in the last 10 years.

“We have probably seen a little bit more of consolidation in the retail sector… In industry funds, you’ve typically got single trustee, single fund, whereas in retail you’ve got a trustee with a number of products where you’ve seen consolidation of those products, so it’s actually difficult to objectively compare the relative merger activity between those two segments because of the different structures.”

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