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(November-2003) Lighting the way to trustee licensing
1. Why are we dealing with both APRA and ASIC?
Before the introduction of the Financial Services Reform Act (FSRA), only public offer funds required a licence. Going forward, all super funds will require a licence of some kind issued by either APRA or ASIC.
An APRA licence is issued under the powers of the SIS legislation and is called a Trustee licence. It applies only to super funds and is aimed at prudential regulation.
The new regime has created what is called an Australian Financial Services Licence (AFSL). This licence, aimed at consumer protection, is issued by ASIC under the Corporations Act/FSR Act and applies to the entire financial services industry. Not all superannuation funds need to have an AFSL.
2. What does the new regime look like?
See Table 1 (right). Critical to the success in an application for the AFSL will be the competency of the responsible officers as well as the ongoing training and supervision of the representatives. There will be a requirement for a detailed set of compliance procedures as well as the facility for internal and external dispute resolution.
The APRA licence will be required by all superannuation trustee companies (except for self-managed super funds and exempt public sector schemes). Super funds will need to be registered as a “Registrable Superannuation Entity” and the process is due to commence April 1, 2004 with a 27 to 33 month transitional period, meaning licences will be finalised by late 2006.
3. How is APRA proposing to structure the different classes of licences?
See Table 2 (right).
4. What will be the criteria that APRA applies for obtaining a licence?
To help guide trustees in their licence applications, Approval Criteria have been issued. Some of the criteria are clear and some will no doubt require some additional explanation. The criteria are as follows:
n Directors of the trustee must be “fit and proper” as determined by APRA
n There must be a Risk Management Strategy at trustee level
n There must be a Risk Management Plan at fund level
n The fund must meet capital requirements (public offer only)
n The fund must comply with the laws applying to trustees and the conditions imposed on the licence.
5. We are familiar with the old Risk Management Statement. What now needs to be included in the Risk Management Strategy (RMS) and Risk Management Plan (RMP)?
All trustees are now required to have both an RMS and an RMP. These two documents are to be provided to APRA and will require annual review and auditing. Members will need to be given access to the RMP.
RMS Content
The RMS must set out procedures that the trustee uses to identify, monitor and manage the risks that arise in relation to its activities as a trustee and its other related activities. They must:
n address the risks of governance and decision making processes
n address the risks of outsourcing arrangements
n set out a business plan
n implement procedures for monitoring and managing expected legal changes
n implement procedures for managing fraud
n identify how the above risks will be audited
RMP Content
The RMP must set out procedures that the trustee uses to identify, manage and control the risks that arise in operating the fund. These are:
n identify risks of the fund’s investment strategy
n identify risks to the fund’s financial position
n identify risks from entering into outsourcing arrangements
n identify how the above risks will be audited.
AUTHOR
Zilla Efrat
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