New powers for APRA: the danger for super funds

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comment by Greg Bright

There’s a reason that the big APRA-regulated super funds didn’t get hauled over the coals by the banking royal commission. They didn’t have anything to hide. The profit-for-member funds were unscathed compared with banks, quasi banks and bank-tainted commercial funds which had embedded financial advice.

The super fund sector has been broadly supportive of the capability review about APRA’s performance, the results of which were made public last week, and APRA was too. It is clear the review panel was targeting the banks rather than super funds when it rebuked APRA for its failings. The cynical among us may also observe that the review recommended APRA be exempted from the public service bargaining framework, which limits pay rises to 2 per cent a year, because this may be inhibiting the organisation’s search for talent. Well, something is.

There were 19 recommendations to APRA from the review panel, which came out of the royal commission, including:

  • For APRA to have the power to veto the appointment or reappointment of directors and senior executives, which would bring its powers in line with international regulators, the panel claimed, and “strengthen its capacity to pre-emptively regulate risks”.
  • the creation of a new superannuation division to oversee the system for all members, including the publication of “objective benchmarks on product performance”
  • an outline of the Government’s expectations for APRA on superannuation
  • consider a review of APRA’s penalties, providing a power to appoint a person to undertake a review of an entity, and enhancing private health insurance licensing powers, and
  • streamline and improve the effectiveness of APRA and the ASIC’s accountability arrangements.

APRA said it supported all the recommendations and described the report as “fair and balanced, and appropriately forward-looking about necessary capabilities needed to stay successful into the future”.

The main issue for the profit-to-member funds, which look after the vast bulk of the retirement savings of working Australians, is that the broad-brush recommendations may be interpreted such that APRA staff believe they will have the authority to exercise more say in the operations of those funds.

Some of the evidence about the banks’ behaviour over many years which was presented to the Royal Commission last year and taken on board by Commissioner Hayne was absolutely shocking. APRA’s failure to prevent that – and let’s not let ASIC off the hook here – does not seem like a reason to give the main regulator more powers, such as to interfere in a super fund’s board or senior management decisions.

The proposed legislation to have a three-plus-three-plus-three board (three independents, three employer reps and three employee reps) for not-for-profit funds did not pass through the last parliament. It is not yet law. But anecdotal evidence suggests APRA is using its persuasive powers to suggest, certainly in the case of the NSW Local Government Scheme, that a new independent director is called for. One wonders whether APRA has an actual person in mind.

A pay rise for the no-doubt hard-working APRA staff (just joking) is neither here nor there. What is needed is an overhaul of the regulator’s management and its own board. Let’s not get the governance of the banks mixed up with the governance of super funds, which have outperformed all other financial institutions on behalf of their members, since the inception of most of them in the 1980s.

The review panel consisted of Graeme Samuel, former ACCC chair, Diane Smith-Gander, former Westpac executive, and Grant Spencer, former deputy governor of the Reserve Bank of New Zealand. It made 19 recommendations to APRA and five others which are with the Government.

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