On 23 May 2012, the Corrs Sydney office co-hosted, with AIST, a Meet the Regulator forum. Representatives from APRA - Carolyn Morris and Katrina Ellis - spoke to delegates about APRA’s approach to the implementation of two central pillars of the Government’s Stronger Super reforms: Prudential Standards and the MySuper authorisation process.
The forum attracted a broad range of professionals actively involved in Australia’s superannuation industry. This included trustees, senior managers, administrators, actuaries, auditors, and fund advisers of industry, retail, corporate and public sector superannuation funds. Corrs was represented by Partner Michael Chaaya and lawyers Emma Higgs and Hilda Wehbi. John Lynch, AIST’s training consultant, opened the forum and Michael Chaaya formally welcomed guests on behalf of Corrs.
The forum was split into two sessions. First, Carolyn Morris presented on eleven of the Prudential Standards proposed for the superannuation industry. Six “behavioural standards” largely reflect prudential requirements that have been in place for some time in other APRA regulated industries (such as banking and insurance). Five Prudential Standards are specific to superannuation. Following a break for refreshments, Katrina Ellis spoke about the key expectations of the MySuper authorisation process, including the new proposed Prudential Standard relating to a superannuation fund’s MySuper offering for default members.
Carolyn gave an excellent overview of the key components of each of the standards and provided useful insight into APRA’s policy intentions underpinning the language adopted in the drafting and their proposed approach to enforcement.
A key message from APRA is that it considers the development of Prudential Standards as positive for the industry. Rather than adopting a prescriptive approach, trustee boards will be required to establish adequate frameworks and demonstrate to APRA that they are in place. A “framework” was described as the “totality of systems, structures, policies, processes and people”.
Reflecting the significance of the proposals, a healthy Q&A session followed the presentation. Delegates were interested in clarifying key concepts regarding the operational risk financial requirement and “material deviation”, together with queries regarding potential changes with APRA’s approach to enforcement.
Katrina provided an overview of the types of documentation and information APRA expects to accompany applications for authorisation of a MySuper product and discussed the enhance trustee obligations, including the requirement to assess sufficiency of scale which will be assisted by the collection and publication of comparative data in respect of MySuper products.
The Q&A session included discussion about the difficulties in establishing an appropriate and compliant fee structure in respect of lifecycle options within a MySuper offering and also in respect of members with interests in multiple investment options that include a MySuper interest. There were no clear answers as to how it was intended funds were to deal with those scenarios, which will likely be the subject of much further discussion within industry, as will complications posed by the variance in insurance offerings within and between funds.
APRA encouraged trustees to discuss their circumstances with their APRA supervisor. The authorisation process will be decentralised, so that each fund’s supervisor will play a key role in the decision making.
APRA oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies and most members of the superannuation industry. APRA is funded largely by the industries that it supervises. It was established on 1 July 1998.
AIST is a national not-for-profit organisation whose mission is to promote and protect the interests of Australia's $450 billion not-for-profit superannuation sector. AIST's membership includes the trustee directors and staff of industry, corporate and public-sector funds, who manage the superannuation accounts of nearly two-thirds of the Australian workforce.
Corrs’ financial services team has the skills and expertise to advise on all aspects of superannuation including the impact of legislative reform and compliance with Prudential Standards and MySuper requirements.