Delivering the detail of SuperStream

SuperStream has been hailed as perhaps the best recommendation to emerge from the Cooper Review but, as Brad Pragnell writes, the devil will be in the detail of delivery.

SuperStream has been an element of the Cooper Review that has received nearly universal support. Eliminating paper and moving towards greater use of electronic payments and data transfer has been seized upon as an objective that will benefit trustees and members alike.

The joint Financial Services Council and Ernst & Young research from 2010 estimated that an investment of $1 billion by the industry towards SuperStream implementation would yield a $20 billion benefit over the coming decade.

To achieve this will require the creation of a sustainable architecture within which superannuation funds collect and exchange data. Standards and their governance form a critical part of this and will be necessary components of SuperStream. They confront industry and government with some key decisions that will need to be made.

Standards are must-haves, not nice-to-haves, in interconnected industries seeking efficiencies. Standards enable greater automation and use of technology, reducing the high costs associated with manual handling. Standards can also drive competition and innovation by providing common platforms for users, competitors and suppliers.

However standards don't fall from the sky fully-formed. Governance is required so that someone develops, maintains and ensures adherence to the standards. SwimEC was an important initiative along the pathway for improved standards for superannuation. However that body in its current form was regarded by the Cooper Review as insufficient to act as a suitable governance body.

If SwimEC in its current form is unsuitable, questions surrounding standards governance in superannuation remain open. What type of governance is required? What type of body should be responsible? Is this something best left to a government regulator or could it best be done by an industry self regulator?

A real life example of standards governance self-regulation is the Australian Payments Clearing Association (APCA). APCA was founded in 1992 and exists to manage rules and regulations for Australia's payment systems, including cheques, direct entry, ATM/EFTPOS, high value and wholesale cash. The rules are publicly available on the APCA website and include message formats, how those messages are exchanged, minimum technology required and how parties agree to exchange value. APCA also issues BSB numbers. However it is not a clearinghouse, system operator nor handler of messages in its own right.

APCA members are required to comply with its rules and this includes, in particular areas, independent testing and audits. As well, APCA activities take place within an environment with a strong regulator in the form of the Reserve Bank of Australia. APCA liaises very closely with the RBA and that regulator could easily choose to take over APCA's role if it felt fundamental policy objectives were not being met.

While compliance and regulation is well and good, APCA could not have been established without industry commitment and recognition of benefits. Establishing this recognition was not without its challenges. In its formative period, APCA brought together three diverse groups - banks, building societies, and credit unions - each with their own separate clearing systems.

APCA's current governance clearly recognises this with no one major industry group able to impose its will on the whole APCA membership. This provides a fine balance of interests between these groups. In creating APCA, the Reserve Bank of Australia also played an important role in bringing together sectors with different standards, business models and cultures. But in the end, it was acceptance by key industry participants that self regulation and standardisation would ultimately produce benefits for both themselves and the industry that sealed the deal for APCA's creation.

What then have been the benefits of the past 18 years? Australia is now one of the least paper-based payment systems in the world. According to McKinsey, we rank with nations such as Finland and the Netherlands as leading lights in the adoption of efficient electronic payments. Obviously not all of this is APCA's doing but this framework has permitted Australia to have one of the most sophisticated and efficient payment systems in the world.

And what are the lessons from the APCA experience for creating a superannuation standards governance body? One is that key stakeholders from across the industry plus government and regulators need to be involved and broadly satisfied with the development of the governance framework. The end result needs to be seen as fair, representative and balanced. In addition, decision making processes need to be transparent, the standards produced open and non proprietary, and where possible those standards must leverage off existing industry structures and processes.

In his presentation to the November 2010 Association of Superannuation Funds Australia Conference on a possible superannuation standards governance model, Jeremy Cooper suggested that body should have a statutory basis. This may be needed, given the unique issues confronting superannuation and the desire for the Government to implement SuperStream in a timely basis. However, Mr Cooper also recognised the need to directly involve industry stakeholders within any new body.

It is this involvement of industry which gives self regulation its ultimate power - by harnessing the commitment and expertise of industry while also fairly recognising it will be industry participants making the investments to implement the changes. The current environment presents a golden opportunity for the superannuation industry to seize the prize and help create a standards governance framework that will propel the industry into the twenty-first century.

Dr Brad Pragnell is head of industry policy at the Australian Payments Clearing Association.