The Australian Prudential Regulation Authority (APRA) has used an article in one of its regular bulletins to place superannuation fund trustees on notice that they need to be mindful of "liquidity provider" arrangements under the Government's proposed new "Stronger Super" regime.
The article points out that many superannuation fund trustees use a particular investment option in a fund as a 'liquidity provider' or 'banker' to the rest of the fund.
"Simply, in this arrangement the liquidity provider is used by the rest of the fund to trade assets with, in order to rebalance strategic asset allocations. The liquidity provider then trades with the external market to rebalance its asset allocation," the APRA article said.
However, it said while this arrangement might provide cost savings for the fund, APRA had observed that trustees had not always fully identified the risks arising from such arrangements or established sufficient controls to fully address or mitigate the risks.
"Specifically, trustees need to ensure that the liquidity provider is managed according to the needs of the members who have chosen to invest in it, and hence, that it maintains an appropriate asset allocation," the regulator said in the article.
It said trustees also needed to be mindful that after the implementation of the Stronger Super proposals, they would need to evaluate whether use of a MySuper option as a liquidity provider would be viable, or even permitted.
"This will be dependent on the Stronger Super legislation," the article said.
