APRA finds gaps between super funds’ risk policies and actions

The Australian Prudential Regulation Authority (APRA) has found that the risk management practices of certain superannuation funds have strayed from their stated policies.

“Our preliminary view after the first nine months of supervision post-licensing is that there is still some way to go in matching risk management structures [with] reality,” APRA deputy chairman, Ross Jones, said. Addressing an Institute of Financial Services of Australia lunch last week, Jones said APRA was assessing whether risk management policies submitted by super funds during the licensing period accurately reflected current risk management procedures, and whether these policies would be responsive to changing market conditions. “With the best will in the world from all parties, we expect to find differences and gaps,” Jones said. He noted that on some recent reviews, APRA investigators had asked trustee directors what they considered to be the major risks confronting the funds. Responses differed from their written policies. “They responded confidently with a group of risks. However, the risks identified were not in the risk management strategy or in a risk management plan. It would seem that some directors might have put their risk management plan ‘on the shelf’ rather than seeing it as a valuable aid. It is important that risk management documents be part of the ongoing operations of the business and that they are regularly updated.” He said APRA’s increasingly risk-based assessment of super funds meant that reviews could become more targeted, resulting in supervisors’ investigations broadening if they detected particular concerns. “[Supervisors] should explain to entities why they want access to particular documents, but there is no reason to expect that all entities would receive identical requests.” Jones said APRA was pleased with Federal Treasurer Peter Costello’s announcement that a court-based process would determine whether individuals should be disqualified under APRA-administered legislation. “A court-based process will give the benefits of consistently applied rules of evidence, a judiciary experienced in commercial litigation with, historically, a low inclination to impose confidentiality orders and a reasonable prospect of improved timeliness in that evidence needs to be tested in court.” Previously, evidence could be examined on up to three occasions, firstly in a “show cause” process leading up to APRAs initial decision, then by APRA’s delegates on reconsideration, and finally by the Administrative Appeals Tribunal before proceeding to court, Jones said.