APRA addresses industry concerns of ‘overregulation’

As it endeavours to strike a balance between implementing a clearer and simpler regulatory framework while still holding industry to account, the Australian Prudential Regulation Authority (APRA) has shared its take on claims of ‘overregulation’.

Speaking at the AFR Super & Wealth Summit, APRA deputy chair, Margaret Cole, noted that, as the industry evolves, so too must the rules and regulations that govern it. 

“APRA recognises industry concerns about ‘over-regulation’. Through initiatives such as modernising the prudential architecture, APRA is working to make the regulatory framework clearer, simpler and more adaptable for all APRA-regulated industries. We are also taking a proportionate approach to reduce regulatory burden on smaller, less complex entities,” she said.

However, there is a balance to be struck as the Australian community expects the industry to be held to account, Cole noted.

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She said: “Super is an industry that has stewardship of trillions of dollars which it receives on a mandated basis; it has a large proportion of disengaged fund members whose financial interests need to be protected; and its fund members should reasonably expect that their superannuation savings will be safe and managed in their best financial interests, and that the service they receive will be commensurate with their needs.”

In the last year, the prudential regulator has notably ramped up efforts in the super industry to improve member outcomes, with Cole admitting APRA has “collected and published more superannuation data than ever before” in 2023. 

Earlier this month, the regulator began consulting with trustees on proposals to publish total fund expenditure. This would mean publishing expenses related to marketing and sponsorships, industrial bodies, related parties, director and executive remuneration, and political donations by payee or service provider. 

“We’re also seeking to publish asset allocation data for investments in property and infrastructure, alternative strategy funds, listed equity and private equity,” Cole added.

It commenced joint administration of the new Financial Accountability Regime with ASIC, which she said would significantly strengthen responsibility and accountability for APRA-regulated entities and their respective directors and other senior executives.

In its third iteration of the Your Future, Your Super performance test this year, APRA also observed just one MySuper product failed, compared to 13 in 2021. 

“As a result, nine underperforming MySuper products have exited the market and a total of 800,000 members, with combined assets of $39 billion, have moved to better performing products,” Cole said.

The 2023 performance test also broadened the scope to trustee directed products, finding some 96 out of 805 trustee directed products failed to meet their benchmarks.

Addressing this development, Cole echoed the sentiment of numerous other stakeholders, who previously told Super Review that trustees could soon favour consolidation of products in their investment menus as they face increased performance scrutiny from APRA.

“To their credit, some trustees with multiple failed products have acted promptly to improve outcomes to members by rationalising their offerings. We will monitor such activity closely and other actions taken by trustees to stamp out poor product performance in the choice sector,” Cole said. 

She signalled APRA will further enhance public scrutiny of super fund performance in 2024 by aligning the performance test and heatmap publications and the underlying data sets. 

“This will provide a comprehensive review of superannuation fund performance and create greater efficiencies for the industry and APRA,” she said. 

Also speaking at the AFR Super & Wealth Summit, Minister for Financial Services, Stephen Jones, considered the decision to expand the performance test an “important achievement” for the government.

“Every year that people languish in underperforming products, they are missing out on future retirement income. Because of our decision to extend the test, members from the 60,000 accounts with failed choice products have now been notified that their superannuation product is failing them,” he said.

“This is an important achievement of the Albanese Government. Better accountability, better transparency, and better outcomes for members.

“This reinforces our commitment to strengthening the superannuation system. As the worst performers exit, the performance test will need to evolve into a more enduring test, but the test will remain.

“Trustees should be able to demonstrate the value they provide and that every dollar is being spent in the best financial interests of members.”