APRA releases proposed prudential standards

The Australian Prudential Regulation Authority (APRA) has released a discussion paper detailing its proposed prudential standards for the superannuation industry.

Currently, APRA can only give superannuation trustees guidance on how to comply with the Superannuation Industry (Supervision) Act 1993 (SIS Act). The new powers granted to APRA will allow the regulator to issue its own prudential standards for the superannuation industry - something it already does for the banking and insurance industries.

Minter Ellison principal Maged Girgis said the proposals in the discussion paper weren't terribly onerous in their current form. He said they were not prescriptive, and mostly reflected the SIS Act. However, he added that it was the potential for APRA to change the standards around in the future without the usual checks and balances that concerned him most.

"It's the potential of the APRA standards that is probably scarier than what they actually are on day one. During periods of economic crisis, you could have short-term standards that will apply without APRA having to go through the parliament," Girgis said.

The discussion paper includes a requirement for funds to put a transition plan into place for transferring members to MySuper funds. Additionally, the definition of an 'independent director' will be tightened, and Board audit committees will require a different chair than the chair of the Board. There will be no set maximum and minimum operational risk reserves under the APRA standards - instead, operational risk reserves will be based on the operational exposure of each fund and its individual risks. Super funds will also have to report once a year on the adequacy of their scale.

Australian Institute of Superannuation Trustees Fiona Reynolds welcomed the APRA standards, calling them "significant and wide ranging". The industry would need to further consult with APRA to hammer out the finer details of the standards, but on the whole, the standards filled in the gaps left by Stronger Super, she said.

"Whilst many funds have high levels of governance, the reforms proposed in the discussion paper will leave funds in no doubt about where the bar is being set in terms of running the super funds of the future in MySuper," Reynolds said.

APRA deputy chairman Ross Jones said the APRA standards would strengthen the superannuation system and provide clear benefits to members.

"The establishment of prudential standards in superannuation will not change the fact that the primary responsibility for prudent management of superannuation funds rests with the trustees," Jones said.

Submissions to APRA on the discussion paper will be open until 23 December 2011.