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APRA fails its own test on costs

Few would disagree that a strong regulator is required for a strong superannuation system. But APRA’s myopic focus on cost to members means its $70,000 Christmas party is unlikely to help its reputation.

Revelations in the AFR that APRA spent around $70,000 on its Christmas party – including a four hour drinks package, canapes and dessert for nearly 500 people – will be something of a headscratcher for the superannuation industry it spends so much time supervising.

A significant chunk of those costs (some $50,000) was not met by ticket sales and so was paid for by APRA – which is funded through a levy the government imposes on super funds (and other financial institutions) to pay for the privilege of having APRA make sure they’re acting in the best interests of members.

It would be interesting but pointless to imagine the reaction if a super fund held the same party, and it probably does not quite constitute a scandal (though what constitutes a scandal usually depends on political necessity). But it is unlikely to help the regulator’s reputation in the industry it is responsible for regulating. Few would disagree that a strong regulator is vital for a strong pension market, or that Australia’s pension market is one of the strongest in the world as a result of exactly that. But while APRA is viewed as a necessity, it isn’t necessarily liked.

  • That’s for a couple of reasons. One is that, by its own admissions – sometimes covered by the Chatham House Rule, sometimes not – it knew the Your Future, Your Super performance test was deeply flawed and enforced it anyway.  Of course, APRA’s responsibility is not really the design of regulation, and it had few options but to enforce it. But given the real-world consequences of the application of that flawed test – which include not just lost jobs, but the rearticulation of long-term investment strategies to meet short-term performance objectives, and the system problems that could create –  those admissions didn’t help.

    The other is its myopic focus on costs to the exclusion of nearly everything else. The grumbling here is quieter; nobody wants to advocate for spending more member money, and super fund employees, while not richly rewarded by the standards of the financial industry, do just fine for themselves (I’m sure we’re all completely beside ourselves when we discover that a fund CIO would be paid much more than $1 million if they worked in funds management).

    But there is a sense that the focus on costs has gone about far enough. Super funds deliver some of the best investment outcomes for the lowest price in the world. Still, APRA regularly exhorts them to keep costs down or drive them lower even as their compliance and administration burden increases with their size; even as APRA itself tells them they need to spend more on cyber security, revalue their unlisted assets more frequently, or collate vast amounts of data on investment holdings and costs – always costs! – to help APRA fulfil its regulatory agenda.

    As has been written elsewhere in this publication, it’s impossible to have it both ways; the regulator needs to recognise that if members are to be protected it will ultimately cost members.

    The regulator’s pricy Christmas party – which, it must be said, was technically paid for with super members’ money – is hardly a good reason for super funds to break the bank. Most likely it will be just one more thing for the industry to grumble about in its conversations about APRA.  Glass houses, too – there was a time not so long ago when Hostplus spent $260,000 on taking employers and its staff to the tennis, which it justified as being necessary for winning new members and retaining key employees.

    But maybe it will cause APRA to be more constructive on how far costs can come down. After all, there’s clearly some things worth spending money on.

    Lachlan Maddock

    Lachlan is editor of Investor Strategy News and has extensive experience covering institutional investment.

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