With the passing of the Superannuation Safety Amendment Bill in both houses of Parliament, licensing in super has arrived.
The following clarifies the Australian Prudential Regulation Authority’s (APRA’s) expectation with regards to the new super licensing regimes:
Fitness and propriety
Fitness and propriety is defined in the operating standard as “the overall standard of educational or technical qualifications, knowledge, skills, experience, competence, diligence, judgment, character, honesty and integrity required to satisfactorily discharge the duties and responsibilities of a registrable superannuation entity (RSE) in a prudent manner”.
Within fitness and propriety, the main points to note are:
n All trustees and responsible officers of corporate trustees must meet the measures of propriety.
n The assessment of fitness may be on a collective level, and differing fund circumstances will be taken into account (example: public offer retail versus small corporate fund with equal representation).
n It is not intended that the standard should prevent individuals from being part of a group or body corporate licensee that must meet equal representation requirements merely because they are not technical experts. A minimum standard of knowledge must be demonstrated at the individual level.
n APRA will not be prescribing minimum educational standards. In assessing whether a licensee meets the standard, APRA will examine the policies and processes that trustees have developed and established to ensure the standards have been met.
Adequacy of resources
Adequacy of resources predominantly looks at financial, technological and human resources and whether they are sufficient to undertake the activities for which the trustee is licensed.
Resources may be those of the trustee, as in the for-profit retail context, or available to the trustee via an employer-sponsor. They may also be the resources of the service provider to whom a material business activity is outsourced.
Financial resources include, but are not limited to, the demonstration of an ongoing ability to sustain adequate solvency of trustee. Insurance cover for potential liabilities incurred by the trustee in its role as trustee and liquidity to support day-to-day operations is also required.
APRA must be satisfied that the systems are adequate to handle necessary transactions and processing for any planned, forecast or likely changes and/or increases in business size and/or capacity.
Depending on the circumstances of the RSE licensee, a sample of the factors will be considered. They include hardware, software and overall system requirements, disaster recovery and business continuity plans, and records maintenance systems.
Trustees must maintain or, in the outsourcing context, have access to adequate staffing levels with appropriate skills, expertise and knowledge to support the RSE licensee in carrying out its obligations.
Outsourcing
This standard will apply to agreements on the performance of material business activities relating to a licensee. It applies to agreements with independent third parties, with related parties or with employer sponsors.
The trustee must, in relation to this standard, assess:
n whether a business activity is a material business activity to which the outsourcing operating standard applies;
n the due diligence process for evaluation and selection of potential service providers;
n monitoring of the performance of the service provider on an ongoing basis; and
n appropriate exit arrangements and strategies.
The guidelines list a number of terms to be included, such as:
n commencement and term of the agreement;
n service levels and performance requirements; and
n audit, monitoring and assessment procedures.
Further, the trustee and APRA will each be entitled to have access to information, and access to relevant premises. They also each have the right to require an audit.
Risk management
Trustees are required to maintain a risk management statement and risk management plan. Each document must be provided on application for a licence and registration respectively, and be reviewed at least on an annual basis.
Risk management strategy sets out the reasonable measures and procedures that a trustee is to apply to identify, monitor and manage risks as they arise from acting as a trustee. This would include risks arising from outsourcing arrangements, changes in RSE licensee laws, potential fraud and theft, and those risks associated with governance and decision making.
Risk management plan sets out the reasonable measures and procedures that a trustee is to apply to identify, monitor and manage risks that arise in operating a licensed entity. This would include risks to the investment strategy, the entity’s financial position, and those resulting from outsourcing arrangements.
To ensure the efficacy of the risk management framework, it is expected that the following audits will be conducted:
n Effectiveness audit — to ensure the framework is appropriate; that it has been implemented and is operating effectively.
n Financial audit — to ensure annual accounts comply with applicable accounting standards and APRA requirements.
APRA looks forward to working with trustees during the application process through the provision of dedicated guidance material on licensing requirements and a series of national workshops, the details of which will be advised in the media.
— Ross Jones is deputy chairman, Australian Prudential Regulation Authority.
