A review of APRA’s 2013 superannuation prudential framework found it had materially lifted industry practices in key areas as governance, risk management and outsourcing.
However, the review also highlighted the need for APRA to continue strengthening prudential requirements in several areas, including board appointment processes, management of conflicts of interest and life insurance in superannuation.
APRA’s review stated that appropriately managing conflicts of duty and interest is critical to ensuring that licensees comply with their overarching obligation to act in the best interests of members.
Areas for improvement
APRA’s proposed enhancements to mitigate conflicts of interest in superannuation include requiring RSE licensees to explicitly assess the impact of conflicts of interest on member outcomes and introducing a two-stage process for the consideration of conflicts of interest.
“First, establish interests held, then establish whether those interests give rise to a conflict,” the regulator said.
APRA’s thematic review noted that policies underlying the conflicts management framework were in some instances too narrowly focused on conflicts arising in relation to responsible persons and did not cover conflicts arising for the RSE licensee as a whole.
“The thematic review also noted that, in many cases, the conflict identification process relied solely on self-identification by directors or responsible persons, with no independent review undertaken. It also found a lack of consistency across the industry in the identification and management of conflicts when dealing with intra-group services and product providers and other related parties.”
The importance of evolution
APRA deputy chair Helen Rowell said it was important that the prudential framework continued to evolve as the industry developed and regulatory priorities changed.
“The Stronger Super reforms deliberately focused on ensuring superannuation trustees that often manage billions of dollars on behalf of members had the necessary frameworks in place to effectively administer the fundamentals of operating their business,” Mrs Rowell said.
“As the industry has matured and lifted its practices, we have shifted our emphasis to ensuring trustees are focused on enhancing member outcomes, especially with last December’s package of reforms.
“We are already taking steps to strengthen the prudential framework in many of the areas highlighted by the review, and we will look to make further changes to incorporate its findings as we progress our superannuation policy priorities. This will include consideration of measures to address relevant recommendations in the financial services royal commission report and the report on the Productivity Commission’s superannuation review.”