The material over-statement of an investment’s asset value and an asset’s risk and return profile have been nominated by the Australian Prudential Regulation Authority (APRA) as key areas of risk for superannuation funds.
In a Prudential Practice Guide issued this week, the regulator has made clear it expects superannuation fund trustee boards to have the appropriate mechanisms in place to both recognise potential areas of risk and then deal with it.
“The loss of members’ entitlements is one of the most critical risks for a superannuation fund,” the PPG said.
“As with any risk, an effective risk management framework would ensure all material sources of risk have been identified and that appropriate procedures are implemented to control each material risk.”
“The most significant fraud related investment risks include the misappropriation of investment assets, material overstatement of investment asset value or material misrepresentations regarding the nature of the investment asset’s risk and return profile,” the regulator said.
The document said APRA expected that superannuation funds would develop and implement an effective due diligence process for the selection of investments and investment managers, which would include appropriate due diligence prior to any investment being made to mitigate fraud related investment risk.
“The RSE licensee’s due diligence process would assist in gaining an adequate understanding of the investment and investment manager under consideration,” it said.
