Regulator

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.

 

 

 

 

 

 

 

Helen Rowell (APRA) Calls for more Super Fund Mergers

We all suffer from change fatigue at times, but changes to the superannuation framework in one shape or form are almost inevitable as the environment in which the industry operates continues to change and evolve.”  [Helen Rowell, APRA.]

The number of Australian superannuation funds supervised by APRA has fallen from 1900 to 330 during the decade to December 2014.  Speaking at the Australian Financial Review Banking  & Wealth Summit in Sydney on 29 April 2015, Helen Rowell said APRA was expecting more superannuation fund mergers and had been “a little bit surprised” about mergers which had been contemplated by trustees but then had not proceeded.

Ms Rowell stated APRA expected to see a continuation of the industry consolidation trend, which has seen corporate schemes reduced to less than 100, and smaller funds capitulate in order to ensure sufficient scale.   APRA will be seeking evidence from super fund trustees as to how they are preparing a future strategy (business plan) and sufficient scale test analysis, which might even involve a ‘graceful exit from the industry‘ if deemed to be in the best interests of members.

On governance and risk, Ms Rowell declared that in APRA’s view, the Australian superannuation industry still has some way to go to really understand the difference between compliance and risk management.  She said, “ A robust compliance framework to ensure adherence with regulatory requirements is important, but just meeting minimum requirements is not enough.”

Describing governance, risk management and risk culture as inherently linked, she said APRA would be pursuing trustees to develop a risk culture and approach that is focused on identifying and effectively managing risks, and which seeks to meet “the spirit and intent, not just the letter” of  prudential requirements.  “It is very difficult to have robust governance practices if the risk culture of the organisation is poor.”  Ms Rowell referred to overseas research which has produced evidence that good governance adds as much as 1% to pension fund returns.

In concluding her remarks she said APRA would turn to thematic reviews involving liquidity management and stress testing and encourage trustees to look for more meaningful comparisons when comparing investment performance with a focus on investment performance at the product or investment option level which is more pertinent than average performance relevant to peers at the fund level.

A copy of the full speech has been made available on the APRA website and can be accessed here:

The Super System – What is on APRA’s Watch List?

 

APRA Releases New Package of Reporting Standards

On 28 April 2015, APRA released 31 reporting standards for the Australian superannuation industry. Of these, 26 are final reporting standards and five reporting standards are being released for consultation. Final standards will commence on either 30 June 2015 or 1 July 2015.

Further material changes are anticipated to the 5 standards released for industry feedback.  Specifically, these standards are focused on changes to reporting of investment data, and information required to be included in Product Disclosure Statements for My Super products.  APRA has also agreed to defer the reporting of investment performance data until legislative requirements relating to the “choice”product dashboard have been fianlised.

Transitional relief for lodgment of quarterly returns has been extended for a further two years, allowing quarterly returns to be lodged within 35 (rather than 28) calendar days of the end of a reporting period until mid 2017.

A link to the discussion on the reporting standards may be found  here:

APRA Reporting Standards

 

 

 

APAR Releases Reporting Requirements for Select Investment Options

On 16 January 2015, APRA released its response to submissions received on four reporting standards in relation to APRA regulated superannuation funds.

Select Investment Options relate to certain non My-Super investment options. The reporting standards will require certain quarterly information about investment performance, asset allocation and member flows as well as structural information about these investment options.

Reporting will only be required by those Select Investment Options which exceed the quantitative threshold of $200 million or more than 5% of total fund assets.

APRA Member Helen Rowell said ‘APRA is confident that the final requirements strike the right balance between APRA and other stakeholders having access to necessary information, and addressing industry’s concerns about the costs and complexity involved in reporting this information.’

The requirements in Reporting Standard SRS 533.1 Asset Allocation and Members’ Benefit Flows (SRS 533.1) and Reporting Standard SRS 702.1 Investment Performance (SRS 702.1) will take effect from 1 July 2015.

 

ATO processes first Superstream contributions

The ATO has commenced processing its first Superstream contributions from August 2014, with further selected groups adopting the new procedures through to November 2014 as part of an induction process.

SuperStream refers to a suite of measures designed to help make the back office operation of super funds more efficient.  It requires employers to process contributions electronically ensuring that payments and data are provided on the same day, under a new Data and Payment Standard.

The Superannuation Funds and providers participating in the First Group identified as part of the pilot scheme were, VisionSuper, AMP, IOOF, CBUS, HESTA, and REST.  Administration service providers included AAS and SuperPartners.

The ATO has confirmed that they have received confirmation of end to end transactions from most of the transactions undertaken to date.

 

APRA Releases Quarterly Superannuation Performance (Interim Edition)

On 21 August 2014, APRA released its quarterly statistics for the period ending 30 June 2014. Australian superannuation Assets now total approx. $1.85 trillion, a 15% increase over the twelve months to 30 June 2014.  For the June quarter assets increased by 2.6%. Contributions for the June quarter totalled $27.6 billion (up 5.9% from June 2013) with total contributions for the financial year coming in at $95 billion. Total benefit payments for the June quarter were $14.7 billion (an increase of 8.3% from June 2013) and totalling $55.3 billion for year ending 30 June 2014.

Net contribution flows (contributions plus net rollovers less benefit payments) totalled $12.4 billion for the June 2014 quarter with net contributions flows for the year ending at $37.3 billion.

The Quarterly Superannuation Performance Statistics are obtained from superannuation entities with at least $50 million in assets, representing 210 superannuation entities, broken down as 192 superannuation entities and 18 public sector schemes.

The full Report is available on the APRA website.

 

 

ASIC Guidance for Disclosure on Superannuation Websites

On 16 June 2014 ASIC released guidance [Regulatory Guide RG 252]  to help superannuation trustees disclose information about superannuation funds and their trustees on their websites with the intention of enabling increased transparency by the industry.  

The changes form part of the Stronger Super reforms which start from 1 July 2014. From next month, superannuation funds must also actively publish on their websites details of  remuneration received by their executive officers and individual trustees, including any appointments and termination/retirement benefits.  In addition copies of the governing rules, actuarial reports and summaries of ‘Significant Events’ that have occurred over the past two years must be kept up to date at all times. 

Regulatory Guide 252 Keeping superannuation websites up to date (RG 252) states that a website will be viewed as being up to date if the information is within 20 business days. For information on remuneration, a website needs to be updated within four months. These time frames are referred to as a ‘safe harbour’ which means that super companies will be viewed as complying with the law if they update their website within these time frames.

The timeframes are set out in Class Order [CO 14/509] Keeping RSEs’ superannuation websites up to date.

Financial Services Inquiry – APRA Submission

APRA has issued its submission to the David Murray led, Financial Services Inquiry which will establish the direction of the future of Australia’s financial system.   The initial submission deadline was 31 March 2014, and the Inquiry has stated it has received over 200 submissions.

Previous Financial System Inquiries have led to significant reform and this one is expected to provide a new blueprint for the financial system over the next decade.  Previous Inquiries include The Campbell Report, in 1981, which led to the floating of the Australian dollar, and deregulation of the financial sector.  The Wallis Report in 1997, streamlined financial services regulation, and led to the creation of the Australian Prudential Regulation Authority (APRA) and the current Australian Securities and Investment Commission (ASIC).

The Inquiry has recognised that the structure of financial regulators helped protect Australia during the global financial crisis, relative to peers, but it must recognise that the financial sector has been transformed by international and domestic crises, regulatory reform agendas, the huge growth in superannuation, and the impact of technology and innovation.

Click here for a link to the APRA Submission:http://www.apra.gov.au/Submissions/Documents/APRA-2014-FSI-Submission-FINAL.pdf

 

 

 

APRA releases minor revisions to Reporting Standards

APRA, today released minor revisions to six Reporting Standards to simplify trustee obligations. The changes will impact upon the following:

  • Reporting Standard SRS 320.0 Statement of Financial Position;
  • Reporting Standard SRS 330.0 Statement of Financial Performance;
  • Reporting Standard SRS 520.0 Responsible Persons Information;
  • Reporting Standard SRS 530.1 Investments and Investment Flows;
  • Reporting Standard SRS 533.0 Asset Allocation (SRS 533.0); and
  • Reporting Standard SRS 702.0 Investment Performance (SRS 702.0)

In an Attachment to the letter to trustees it summarises the changes that have been made which will take effect from 01 April 2014 which will require compliance by RSE licensees for reporting periods from 1 July 2014.

APRA is also requesting, in its letter, that trustee’s report using the revised format for the March quarter “to the extent practicable“.

A copy of the letter from APRA, dated 25 March 2014, is available here:

http://www.apra.gov.au/Super/PrudentialFramework/Documents/APRA-Letter-Revised-Reporting-Standards-March-2014.pdf

 

 

APRA/ASIC Letter to RSE Trustees – Consistency for disclosure and reporting

On 21 March 2013 APRA and ASIC provided joint correspondence to all RSE Licensees to clarify how information must be consistently provided in respect of section 29QC of the SIS Act.  This means that the requirements under the relevant reporting standard and method of calculation must be the same as that disclosed to a member, particularly through a website.

APRA have emphasised this requirement is for comparability of information about superannuation products, and given the compulsory nature of superannuation ensures members are fully and reasonably informed.

In the Letter to Trustees, APRA, by way of example, point to Reporting Standard SRS 700.0 Product Dashboard which is also required to be included in an RSE licensee’s disclosure documents.  Similarly data required to be submitted to APRA under Reporting Standard SRS 533.0 Asset Allocation, and Reporting Standard SRS 702.0 Investment Performance and Reporting Standard 703.0 Fees Disclosed is related to information a licensee is required to disclose under the Corporations Act.

Where the information provided to a member is the “same” or “equivalent” as that given to APRA the method of calculation must be consistent and in accordance with the Reporting Standards.  So, for example from 1 July 2014, SRS 703.0 will require RSE licensees to report fees and costs information required to be disclosed in their PDS. Prior to this date, APRA intends to update SRS 703.0 to ensure that the calculation methodology for that information is fully aligned with the requirements in the regulations for PDSs and consistent with the Explanatory Statement for the regulations which provides that fees and costs must be disclosed gross of income tax.

 

A copy of the letter has been made available on the APRA Website and can be accessed here:

http://www.apra.gov.au/Super/Documents/ASIC-APRA-letter-s29QC-March-2014.pdf

 

 

 

 

 

 

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