APRA concerned by trustees’ approach to risk

The Australian Prudential Regulation Authority (APRA) is concerned that trustees aren’t fully aware of the entire gamut of risks facing their funds.

Speaking at the ASFA conference last week, Ross Jones, APRA deputy executive, said in a number of fund visits, the risks trustees named when they were asked for the biggest risks facing their fund had not already been identified. As part of the new licensing regime trustees are required to develop a risk management statement (RMS) identifying all the risks to the fund and a risk management plan (RMP) of how they will deal with those risks if they manifest. “The feeling is an RMS/RMP is something required for licensing, not something appropriate to be implemented. We need to be concerned if risks to the fund are not well understood by the directors,” Jones said. Jones said that with many funds now looking to allocate more to non-traditional assets, it was important that trustees understood investment risks associated with some of the more illiquid assets. He also warned trustees to be aware of the different regulator standards overseas. “Instances have already occurred where funds have entered into international arrangements and trustees have breached Australian standards,” he said. Recognising that superannuation had a high degree of outsourcing, Jones said the regulator would start a series of visits to service providers. “Some of these visits will be in this financial year,” Jones said. The visits will ensure that the provision of services is actually meeting the requirements of the SIS Act. “We don’t want form over substance…The next 12 months we’ll look very closely at providers,” Jones said.