APRA chair John Lonsdale has rejected suggestions that the regulator is unfairly targeting superannuation funds, insisting its governance crackdown is part of a broader push across the financial sector.
“Superannuation is being treated in the same way as other regulated sectors – banking and insurance,” Lonsdale said in a speech to the AFR Banking Summit.
His comments come as APRA moves to tighten governance rules in response to concerns about board effectiveness, reputational risk, fitness and propriety, conflict management, and director tenure at some financial institutions.
While super funds have faced intense scrutiny in recent years, particularly around transparency, performance, and the use of member funds, Lonsdale said on Tuesday that the regulator’s focus is sector-wide.
“Some superannuation trustees run multibillion-dollar funds with complex operational requirements. We expect them to have governance arrangement to match, as no doubt do their members,” the chair said.
Lonsdale said that APRA’s decision to strengthen cross-industry prudential standards on governance was influenced by the unpredictable “geopolitical maelstrom” unfolding overseas.
Beyond the risks of global trade wars and military conflicts, APRA is also monitoring what Lonsdale described as “a fraying of the international consensus on financial regulation that’s existed since the global financial crisis”.
“Calls to rethink the impact of regulation on competition and efficiency have been growing globally for several years. There’s no doubt, however, that the campaign has been boosted by a new US administration with an agenda that includes cutting red tape, increasing trade barriers and reviewing multinational frameworks,” he said.
While it’s “too soon to tell” the impact on Australia’s financial system, Lonsdale said that global shifts, particularly in the US, will have ripple effects.
“We are reluctant to lower the regulatory standards that keep Australia’s financial system resilient and our economy strong, particularly when we see geopolitical risks increasing,” Lonsdale said.
However, he said that doesn’t mean APRA is “closed off to making our prudential framework simpler, less burdensome or more proportionate”.
“Unlike deregulation, which can mean lowering standards, this simplification means making regulation easier to understand and implement and less costly and burdensome to comply with,” he said.
“Proportionality and regulatory burden were both front of mind for APRA as we embarked earlier this month on a review of our requirements for governance.”
Of the eight proposals made by the regulator earlier this month, the chair said while some seek to tighten requirements, others aim to ease directors’ workloads by cutting red tape and streamlining delegation, especially for smaller institutions.
“For many entities, these proposals wouldn’t represent a big change because they already have in place mature governance practices that often go further than our current prudential requirements. For some with weaker arrangements, they will need to catch up to modern good governance practice,” he said.
Although the three-month consultation period is still in its early stages, industry feedback on the proposed reforms has been largely positive, Lonsdale said, with strong support for measures that ease directors’ workloads.
Ultimately, he underscored the difficulty of navigating an environment marked by high speculation and low certainty, saying that with nearly 80 per cent of APRA-supervised entities grappling with governance issues, the lessons of the financial services royal commission remain as relevant as ever.
“Recent Australian history shows the clear link between weak governance and poor outcomes for financial institutions and the customers that rely on them,” Lonsdale said.
“As the global financial system becomes more complex and interconnected and new risks emerge, APRA’s governance review aims to ensure our banks, insurers and superannuation funds are overseen by leaders with the right mix of skills, experience and character to successfully meet those challenges.”
