APRA releases snapshot in Risk Culture

On 18 October 2016, APRA released an information paper which provides a snapshot of current practice in risk culture across the financial services industry in Australia.

What is Risk Culture?

Risk culture is described as the organisational culture on how risks are managed. It is how staff identify, control, mitigate and monitor risks in the Group.

While APRA acknowledges the progress made in the industry to focus on risk culture, momentum will need to be maintained with increased attention by APRA-regulated institutions to improve their understanding and management of risk.

Prudential Standard

APRA’s go-to document is Prudential Standard CPS 220 Risk Management which has been in place since January 2015.  APRA Chairman Wayne Byres has called upon the industry to sustain focus on strengthening risk culture.

It’s the responsibility of each institution’s leadership – led by their CEO and supported by their Board of Directors – to ensure they have a sound risk culture that supports its ability to operate in accordance with its strategy and risk appetite. This is not an easy task, but nonetheless it is critically important for an institution’s long-run health,’ Mr Byres said.

APRA recognises that it cannot regulate culture, however it will apply higher supervisory oversight on institutions unable or unwilling to address behaviours that are inconsistent with prudent risk management practice.

The prudential regulator states it will work to identify practices that are associated with sound, and less sound, risk cultures, and share those observations with regulated institutions and other stakeholders.  APRA is also reviewing remuneration practices to examine how these interact with risk culture.

A link to the information paper may be found here:


Information Paper: Risk Culture

APRA sets out expectations for life insurers and superannuation trustees when assessing insurance claims

APRA has identified a number of areas, where superannuation trustees and life insurers can improve their claim handling processes. APRA has provided a letter to RSE licensees and life insurers which coincides with a report released by ASIC on an investigation into the treatment of insurance claimants.

Regulators to focus on claim handling processes during 2017

During 2017, APRA and ASIC will work closely with the industry to provide a consistent public reporting regime for claims data and claims outcomes, including claims handling time-frames and dispute levels across separate policy types.  The data will be available on both an ‘industry’ and ‘individual insurer’ basis.

Insurance Risk

A number of superannuation trustees and insurers have projects underway to improve their claims processes. APRA will monitor the progress of these activities, and expects key risks to be recognised and actively addressed by insurers and trustees.

Group insurance arrangements in superannuation, including claims oversight and governance practices, remain an area of heightened focus for APRA and it is expected that the superannuation and life insurance industry will continue to work to improve practices in this area over time.

A copy of the APRA correspondence provided to RSE (superannuation) trustees  and life insurance companies may be found on the APRA website via these links:

Letter to Life Insurers

Letter to Chairs of RSE Licensees

A copy of the statement issued by ASIC following its investigation into the treatment of life insurance claimants may be found here:

ASIC: Industry Review of Life Insurance Claims



FSC welcomes changes to non-concessional superannuation caps

On 15 September 2016, the Financial Services Council (FSC) welcomed the Government’s revised proposal on superannuation taxation following industry consultation.

Under the revised rules, it will be possible to contribute up to $125,000 into superannuation each year until a limit of $1.6 million is reached.  This comprises $25,000 concessional contributions (before tax) and $100,000 non-concessional (after tax) contributions.

Sally Loane, CEO of IFSA states, “In order to get long-term certainty, we urge the Government to remove superannuation from the annual Budget cycle, and instead tie it to the five-yearly Intergenerational report, which would enable sound policy to be built based on demographic shifts.

Age-Pension Consumes 10% of Federal Budget…

Superannuation is our only truly intergenerational public policy, the purpose of which is to provide adequate self-funded retirement incomes for all of us, and equally importantly, to reduce pressure on the age pension system, which at $44.7 billion a year and rising at a rate of seven per cent each year, already consumes 10 per cent of the Federal Budget.”


APRA Releases Trio Investigation Report

On 8 April 2016, the Australian Prudential Regulation Authority (APRA) released its report into the investigation of the collapse of Trio Capital Limited, providing an overview of the circumstances which contributed to the failure and the regulatory actions taken.

The outcome of the Trio investigation provides important lessons for superannuation trustees, who must act in the best interests of their members. Importantly key factors impacting Trio were:

  • inadequate investment governance processes
  • failure to adequately manage conflicts of interest with related parties;
  • failure to implement adequate controls to mitigate fraud

Copies of the investigation report are now available on APRA’s website:


Statement on Life Insurance – FSC

The CEO of the Financial Services Council, Sally Loane, has issued a statement suggesting its support for reforms to life insurance advice, based on the review it commissioned by John Trowbridge during 2014/15 with reforms aimed at removing conflicts from the industry.

Calling for ‘swift passage’ during the legislative sitting week commencing 13 March, the FSC asserts it will introduce a Code of Practice between life insurers and consumers to commence from July 2016.

Under the proposals new advisers will be required to complete a university degree, an exam, a professional year and be subject to a code of ethics and undertake continuing professional development to strengthen the advice profession.

The FSC also stated it recognised the increasing number of claims for mental health related conditions referring to its own Mental Health Standard requiring FSC members to provide training for all front line staff to ensure they have a suitable understanding about mental health conditions to support them in their work in underwriting and claims processes.

Sally Loane stated that while the life insurance industry is undergoing considerable reform and scrutiny, its important to remember the important role it continues to play in helping to support Australian lives.  Ms Loane stated that over the last 8 years, $27 billion had been paid out in claims.



Senate Scrutiny of Financial Advice to Include Life Insurance

In March 2016, the Senate referred the following additional matters to the Economics References Committee as part of its inquiry into the implications of financial advice reforms

  • the need for further reform and improved oversight of the life insurance industry
  • whether entities are engaging in unethical practices to avoid meeting claims
  • whether a life insurance industry code of practice is required
  • the role of ASIC in reform and oversight of the industry; and
  • any related matters

submissions for this inquiry close on 15 April 2016.


Discussion Paper on the Objective of Superannuation

In response to a recommendation from the Financial System Inquiry, The Hon Kelly O’Dwyer MP, released a discussion paper on 9 March 2015, entitled the “Objective of Superannuation” setting out for public consultation the Government intention to enshrine the ‘objective‘ of superannuation in law.

Setting out the objective in legislation is intended to guide policy makers, regulators, the super industry and the community at large about the fundamental purpose of superannuation.

We want to have a conversation about the precise wording of the objective – to help frame the broader conversation we need to have about superannuation” said Ms O’Dwyer.

Stakeholders are invited to comment by lodging a submission online by 6 April 2015.

Objective of Superannuation



Chant West: Up to 80 Superannuation Funds have insufficient scale

In an article published in the Sydney Morning Herald, (4 August 2015), Ian Fryer, Head of Research, Chant West said that based on the firm’s research, up to 65% of MySuper providers are too small to deliver benefits of scale and up to 80 superannuation funds will need to consider closure or mergers.

Fryer called on the Australian Prudential Regulation Authority (APRA) to enforce small funds with less than $5 billion in assets to ‘merge or fold.’   (There are currently 89 funds with less than $5 billion). He said, that those with more than $10 billion in assets are able to provide a better return and service to their customers, while charging less in fees.

Industry funds which Chant West research indicates should close include, Transport Industry Super, Law Employees Super, and Concept One and Club Super, all of which have less than $500 million in assets and charge up to 1.78% in fees.  Amongst the retail funds which should consider closure are Smartsave Super and AMG Universal each with less than $300 million and charging more than 1.28% in fees.

Mr Fryer said there are rare exceptions of funds with less than $5 billion in assets that can justify continuing at a small scale because they provide a valuable service to a specific member base.

He highlighted Mine Wealth + Wellbeing (formerly Auscoal), which has excellent insurance coverage for high-risk workers in the coal-mining industry.

Mr Fryer proceeded to present Chant Wests’ latest research at the Financial Services Council (FSC) annual conference on the Gold Coast, (5-7 Aug 2015) at which a key discussion was held around the Fair Work Commissions’ role in oversight of MySuper default selection.  While the Murray Financial System Inquiry and the Grattan Institute have both called for a revamp of the Fair Work Commissions’ role Fryer argued resources might be better deployed in a ‘crackdown on minnow funds’.

[Original Article by Sally Rose, appeared in Sydney Morning Herald, 4 Aug, 2015]




Trust and Confidence, Culture and Ethics : Speech by Greg Medcraft, ASIC

Speaking at an Annual dinner of the Paddington Society in Sydney, 6 August 2015, Greg Medcraft spoke of the “right nudge in shaping communities locally and globally“.

On Culture Mr Medcraft described, how, since the global financial crisis, we had witnessed example after example of financial institutions behaving in a way which left customers coming off second best, eroding trust and confidence in the financial institutions. Referring to the growing pool of Australian superannuation savings (superannuation assets estimated at $5.1 trillion by 2030), Mr Medcraft described the challenge to regulate “real people” as opposed to an entity; those from the top of the institution to those on the front line, by closely examining the behaviours and incentives, with credible deterrence for breaking the law.

It is no good simply  pursuing the bad apples if the fundamental problem is the tree itself.”

Mr Medcraft stated that ASIC would be looking to Board and Management to continue to review, enforce and validate good conduct by adopting the 3 C’s of good conduct:

  • Communicating from the top on what is to be expected
  • Challenging whether the culture is achieving the desired outcome
  • Complacency – ensuring there is no complacency

Mr Medcraft endorsed the work of the St James Ethics Centre for working with a number of institutions in helping to develop an ethical framework on ‘how to do the right thing’, when running their businesses.

Good culture should not mean mountains of red tape and armies of compliance staff“.

However, Mr Medcraft went on to say that where institutions are hurting their customers through a delinquent culture, stronger enforcement powers are needed by the regulators.  To this end, ASIC has called for the broadening of the culture provisions of the Crimes Act, to the Corporations Act, applying them to both entities and responsible management. In the same way that breaches of health and safety can leave management responsible for breaches of the law, ASIC’s position is that the most senior people in the financial sector should be held personally accountable for the actions of those on the front line.

In referring to The Value of the Crowd, Mr Medcraft touched on the impact of social media and technology and the unprecedented access to information, and how financial institutions were being held accountable by ‘The Crowd’.  What we are therefore finding, said Mr Medcraft,  is that if financial institutions to do not act in the right way, the crowd will let them know, if not the news headlines:

“..being judged by the crowd, and by your peers has major reputational consequences above and beyond any monetary impact.”

In concluding remarks Mr Medcraft repeated his emphasis on ‘real people’, rather than academic concepts, describing how people get fleeced ‘..And sadly, those who get fleeced, are not only the wealthy’.

Therefore cleaning up the culture is a priority for Mr Medcraft and ASIC because while noting that markets might recover, real people, often do not. He reminded his audience that as a member of any group, organisation or family, trust and confidence will remain crucial in everything that we do as a community and therefore the cornerstone of society.






Governance Requirements: APRA Letter to RSE’s

On 26 June 2015, APRA provided correspondence to superannuation trustees alerting them to the Government’s proposed changes to the governance requirements for RSE licensees.  Changes proposed involve minimum independence requirements, effective from 1 July 2016, for trustee boards, which must put in place at least one third minimum independent directors, and an independent chair, following a three year transition period.

To support the proposed amendments APRA will amend Prudential Standard SPS 510 (to reflect the independent director requirements) and introduce a new Prudential Standard SPS 512 ‘Governance Transition.’

The definition of independent director and material relationship will be set out in the proposed amendments, with APRA including some of the circumstances which APRA will constitute a material relationship.  APRA proposes to include material professional advisers, consultants or suppliers as examples of material relationships.

In addition to changes to trustee boards, APRA will also require a majority of the Board Audit Committee and Board Remuneration Committee to comprise of independent directors, including an independent chair.

APRA will require trustee boards to include a revised process for board renewal which addresses provisions which relate to the process by which directors are nominated for board positions. The framework must also assess suitability of candidates for appointment, with regular on-going assessments of independence by trustee boards, as circumstances might change over time.

APRA will have an executive over-riding power to determine whether someone meets the definition of independent.

More generally APRA intends to issue guidance on:

  • the size of RSE licensee boards;
  • renewal and appointment process;
  • setting director tenure limits;
  • management of conflicts, particularly where multiple directorships are held; and
  • the role of board committees, i.e. remuneration & risk committees

During the transition period, RSE licensees will be expected to ensure ongoing effectiveness and functionality while its membership is adjusted during the transition period. Trustees will need to implement a transition plan to support the functioning of the board during the transition period which must be approved by the trustee board no later than 1 July 2016.

The APRA letter to trustees is available on the APRA website.