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YFYS and the path to a super data highway

“The industry should not be happy to simply sit somewhere in the middle... Increased transparency will drive increased analysis and action. If you can’t measure it, you can’t improve it.”

The government’s planned review of the performance test in the Your Future Your Super (YFYS) regulations may be an opportunity for a broader discussion about data – its collection, management and the insights which can be drawn by the regulator and industry alike.

According to Matthew McKenzie (photo above), founding chief executive of Nuj, a recent entrant to the growing regtech market, it is important that the increased transparency that flows from APRA’s administration of the Treasury-designed test goes both ways; back to the funds as well as from them to the regulator.

There has been widespread industry criticism of the first part of the test, on super funds’ MySuper balanced products, and the government has put a 12-month hold on the next part, which includes member investment choice products. However, participants among the big funds, industry associations and the major research houses are resigned to the continuation of the current MySuper test and annual APRA heatmap in some form.

The test has been retained in APRA’s latest corporate plan which was published this month. The funds have never publicly criticised the introduction of a performance test as such; only its crude design and implementation.

From a business perspective, McKenzie is well experienced in super fund data. Prior to Nuj Super he was the head of strategy and then chief executive of member admin technology company Recreo and before that a director and CFO of Lonsec and a director of SuperRatings. He has also been the CFO of CCube, a fintech for wealth managers, and the financial controller for Russell Investments in APAC.

He is a strong believer that an “iterative” process should be employed by APRA with the performance test and accompanying heatmaps. As with data and technology, an iterative process involves refining and changing the product in response to the market requirements. APRA needs to be prepared to take onboard feedback and make changes when there is resounding evidence they should be made, he says. Whether or not APRA has done that with the MySuper test is open to interpretation.

At the same time, McKenzie says, the funds should recognise and embrace that this is the future. That was why APRA introduced its ‘superannuation data transformation reporting regime’.

“There has been pushback from the funds. APRA hasn’t got it perfectly correct yet by any stretch,” McKenzie says. “So, let’s pause. The delay [on choice options] is good. We can give more feedback. A lot of what the industry is saying makes sense, and so it is an opportunity for APRA to translate this feedback into improvements.”

A particular area of pushback which has some in the industry hot under the collar is expenses, and what the funds believe should be confidential because of competitive sensitivity.

“I’m a bit concerned about what happens next,” McKenzie says. “Bear in mind APRA’s intention for the next phase of their data transformation program was for what it called ‘depth’ in reporting, so it goes down to the member to see. With the push back from industry on confidentiality, this could impact the actual depth in reporting achieved.”

Overall, he thinks the industry will benefit significantly from a free flow of more granular data back and forth between funds and the regulator.

“The industry should not be happy to simply sit somewhere in the middle,” he says. “Increased transparency will drive increased analysis and action. If you can’t measure it, you can’t improve it.”

Nuj’s business growth is predicated on a transformation in reporting in some guise. It sits between the funds and the regulator, facilitating the flow of information by providing insights at all points along the path to a super data highway.

“We take in all the data that the funds are going to report to APRA under the new reporting regime. We check, validate and visualise it to show the fund what it looks like and what it is saying before they report it,” McKenzie says. “The platform automatically analyses how the fund is performing on a quarterly basis so the trustee can take action before the regulator asks them to.”

The funds will already be doing this via existing operation, however, there will be inconsistencies between what is calculated and what is reported. Above this, the funds already spend a lot of time gathering the required information from custodians, trustees, asset managers and insurers, which represents a considerable efficiency drag on their operations.

McKenzie started Nuj in mid-2019. The firm currently has five full-time staff and a dozen or so part-timers and contractors. It has been working with its first client, Equity Trustees, for about 18 months. He says it is well-capitalised and will be embarking on a second-round raising later this year or early next year.

“What we’re saying and doing is resonating with funds,” he says. “We are taking a lot of the regulatory pressure off them and providing an extra layer of comfort. A key advantage for us is that we are unencumbered by any legacy systems or processes. So, we are able to leverage the latest digital technologies on clients’ behalf.”

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