This page is an extract from the presentation addressing current APRA superannuation initiatives, and in particular:

  • APRA Related Party Arrangements Thematic Review
  • APRA Discussion Paper – Post-implementation review of APRA’s superannuation prudential framework

We hope that this summary and overview of key points is helpful.  Please let get in touch with Sarah Yu or Michael Vrisakis if you would like to discuss any aspect of these initiatives, or the presentation extract.

APRA Related Party Arrangements Thematic Review (“ARPATA Review”)

  • Thematic review undertaken across 2016 and 2017
  • Identified weaknesses in selection, monitoring, outcomes of using related party service providers
  • Detailed analysis of 14 RSE licensees’ policies, procedures and past practices

ARPATA Review – Contract Management

Criteria Assessment

  • Are there legally binding contracts in place?
  • Are all “important” provisions present, such as:
    • Termination triggers and rights?
    • Fixed duration v open-ended duration?

Considerations

  • Are there appropriate benchmarkings, for example, pricing and terms?
  • Are there performance based termination triggers?
  • Are there appropriate performance monitoring mechanisms?
  • Are there penalties for sub-performance?
  • Are there appropriate reporting mechanisms subject to review and oversight by RSE?

ARPATA Review – Benchmarking

Criteria Assessment

  • Are there comprehensive and rigorous selection and benchmarking processes?

Considerations

  • Are external consultants engaged in relation to benchmarking?
  • Is there appropriate documentation of comparisons for alternative providers?
  • Are there “barriers” in the service and contract design to ensure that the incumbent was not advantaged?
  • Is there ability/provision for a competitive tender?

ARPATA Review – Materiality, Documentation of Decision-Making and Conflict Management

Criteria Assessment

  • Assessment of materiality of the service provision
  • Documentation of decision-making on related party arrangements
  • Addressing related party arrangements in Conflict of Interest policies

Considerations

  • Prudential Standard SPS 231: is a related party service arrangement material?
  • Are arrangements documented as being at arms-length and in the best interest of members?
  • Have alternatives been thoroughly considered and documented?
  • Have directors and responsible officers’ roles/relationships with service providers been comprehensively reflected in the framework?

ARPATA Review – Data reporting (Reporting Standard SRS 331.0 Services)

Criteria Assessment

  • Have certain expenses been classified into associated and non-associated?

Considerations

  • Have expenses been accurately classified into with associates or with non-associates?
  • Has the definition of “associate” been properly understood?

Post-implementation review of APRA’s superannuation prudential framework

Scope of review

  • Essentially a review of the prudential framework referred to as Stronger Super
  • Exercise is one initially of consultation until September 2018, consider in Q4 2018, and release for post-implementation by early 2019
  • Four key inputs sought from stakeholders:
    • effectiveness of the current prudential and reporting standards and supporting guidance material
    • practical impact of the framework on stakeholders
    • further potential areas of review to either enhance outcomes or reduce compliance cost
    • merits of such potential changes to the framework
  • Particular focus on:
    • compliance impact information associated with the introduction of the prudential and reporting standards
    • benefits obtained as a result of introduction of prudential and reporting standards

Background

Cooper Review had three items which focussed on APRA’s prudential framework

  1. oversight and promotion of fund efficiency
  2. conferral of standard-making power
  3. provision by APRA of more in-depth data and analysis on the superannuation sector

The Review:

  • covers all prudential and reporting standards (including guidance material) introduced or referred as a result of Stronger Super
  • seeks feedback on aspects of the framework and its requirements that may not be meeting the original policy intent or objectives

Process

  • First Tranche:
    • this discussion paper
    • short topic papers on governance and risk management
  • Second Tranche:
    • short topic papers on financial requirements, operation and risk and outsourcing and investments
  • Third Tranche:
    • short topic papers on insurance and member flows and products

The prudential and reporting standards

Cooper recommendations

  • intent to allow APRA to:
    • provide increased clarity and certainty
    • increased alignment with the prudential framework for other parts of the prudentially regulated sectors
  • enhanced data collection and publication to promote increased transparency of the industry

Prudential and reporting standards

APRA indicated objectives of:

  • prudential standards were to:
    • apply standards to all trustees that are aligned appropriately with good standards of governance
    • improved alignment of prudential regulation across APRA regulated industries
  • reporting standards were to:
    • strengthen prudential supervision of the superannuation industry in accordance with APRA’s mission
    • meet the requirements of end users of data collected by APRA in fulfilment of its role as a national standard collection agency
    • supporting the Standard Business Reporting Initiative to streamline reporting frameworks
    • promote transparency and comparability within the superannuation industry

Questions for consideration

General questions

1. Have the prudential standards:

  • provided increased clarity and certainty for trustees in relation to their obligations as trustees of superannuation entities? If not, how could they be improved/amended?
  • been embedded in the decision-making processes and practices of trustees, and used in practice to support sound decision-making? If not, why not and how could they be improved/amended to achieve this?

2. Do the prudential standards continue to reflect current practices in the broader financial sector? If not, how could they be improved/amended?

3. Are there any material gaps in the areas covered by the prudential standards that need to be remedied to achieve the original intent and objectives of the prudential framework?

4. When implemented, did the prudential standards:

  • lead to positive changes to practices, structures, etc. across the superannuation industry?
  • give rise to unintended/adverse impacts?

5. Is there sufficient flexibility in the prudential standards to accommodate business operations of trustees? If not, how could they be improved/amended?

6. Do the reporting standards provide policymakers, regulators, trustees and the community with sufficient information to assess the overall performance of the superannuation system? If not, how could they be improved/amended?

7. What is your view on the quality of the data captured through the reporting standards and any areas where improvement in data quality would be desirable to achieve the original intent and objectives of the prudential framework?

Questions on costs and benefits

8. What costs were incurred, and continue to be incurred, in complying with the prudential standards? To what extent have these costs delivered benefits such as increased clarity and certainty, or improved outcomes? How have you assessed these cost-benefit trade-offs?

9. What costs were incurred, and continue to be incurred, in complying with the reporting standards? To what extent have these costs delivered benefits to members and other stakeholders through enhanced transparency and comparability? How have you assessed these cost-benefit trade-offs?