As they begin preparing to comply with the looming Australian Prudential Regulation Authority (APRA) licensing regime, many in the super industry feel aggrieved that trustees have new licensing requirements to meet just as the Financial Services Reform (FSR) Act takes full effect.
Cbus fund secretary Helen Hewett expresses the frustration. “This is yet another layer of compliance that will add to costs.”
APRA’s intervention, notes Hewett, now means super trustees have three regulators to comply with following the Australian Securities & Investments Commission (through the FSR) and the Australian Taxation Office (ATO).
Philippa Smith, chief executive of the Association of Superannuation Funds of Australia (ASFA) is supportive of the objectives behind APRA’s licensing requirements, “especially to ensure people have the required skills and funds the right skill mix”.
She is unsure how much extra work is going to be needed by super trustees. “It will require extra work, but how much extra depends on the details.”
Certainly, Hewett notes that “many funds have done work on ASIC requirements, which, while time consuming, were probably worthwhile. APRA’s new regulations will thus not present a huge problem as most of the large funds are well placed to comply and will not need to do much more than review procedures. The fitness test is not too onerous.”
Mick Reardon, compliance officer at CARE Super, is more concerned. “We simply do not know how onerous the requirements will be. So far, all we can do is attend workshops and try to look at our systems to see where we could fall short. It could end up being a lot of work trying to meet APRA’s requirements.”
The main difference Smith highlights with the FSR requirements is that funds cannot contract out to third parties as they all need to conduct a risk management plan. “The extra focus and attention is equal to the FSR so most funds are buckling down and looking at their risk management strategies and structures.”
Under the new legislation — the Superannuation Safety Amendment Bill — which is aimed at building on the existing prudential framework, trustees of super funds regulated by APRA will be licensed and required to prepare risk management documentation and comply with enhanced reporting requirements. Trustees will thus need to have a better than passing understanding of the matters impacting on the super funds for which they are responsible.
Hewett says more communication work will have to be done to explain the changes to members and expects the changes will primarily impact around the training of trustees. “Smaller funds will have greater difficulty.”
The Superannuation Safety Amendment Bill requires all trustees to obtain an APRA licence and register their fund by July 1, 2006.
Attorney Michael Vrisakis, a partner at Blake Dawson Waldron, expects the details to be released in mid-June.
He anticipates that APRA will continue or increase its focus on governance issues. “APRA has scope to do this on at least three different levels. It can assess the suitability and competency of the trustee. It can impose conditions on a licensee. Finally, it has an enforcement program. In this new compliance landscape, two things are clear: APRA will be a vigilant monitor of compliance and industry practice will be an important yardstick to gauge and promote compliance.”
“It is using its experience gained in investigating certain non-complying funds to raise concerns in its routine trustee reviews of complying funds.”
APRA is thus raising issues like regular trustee meetings and minutes; supervision of delegates such as administrators and reviews of their competency; investment process, and use of default investment options and member choice generally.
