Individual trustees have been instructed to improve their skills and to keep on improving them in a strident speech given by Helen Rowell of the Australian Prudential Regulatory Authority in Melbourne.
Such was the depth of requirements made that delegates at the Australian Institute of Superannuation Trustees’ governance symposium openly questioned whether trustees would have to work full-time to comply.
Rowell said APRA would keep raising the bar. “We will expect your processes to continue to evolve. We will not accept inertia or complacency in terms of any aspect of your operations.”
This came with a warning that individual directors would face greater scrutiny and could not hide behind the overall effectiveness of the board or providers.
Rowell said APRA did not expect each director to be an expert in every area, but that it was “not acceptable to abdicate decision making responsibility by relying solely on other directors or service providers” and she urged trustees to find ways to improve their skills and understanding.
Raised standards will be measured in how far directors play an active role and take an active interest in all aspects of decision-making.
She answered a question from a delegate on whether this would lead to full-time trustees by stating: “A lot of non-executive directors are not full-time elsewhere. It just means undertaking their roles in a professional way rather than being novice and amateurish. We are expecting a degree of diligence and understanding. It is making sure their time is focused.”
In this context, Rowell dodged any attempt at an outright endorsement of independent trustees in helping trustee boards, but the following comments came close.
“APRA will want to be satisfied that there is appropriate board renewal process in place and being actively implemented. We are focused on ensuring there is the necessary expertise around the board table and that fresh skills and ideas are being brought in over time,” she said.
“Independents are something funds need to consider. We want quality of interaction and quality of involvement from trustees wherever they come from.”
In a speech in which Rowell also acknowledged how hard she was working to complete Stronger Super – “It is a very stimulating role and it keeps me exceedingly busy and at times it is very challenging” – she urged trustees to raise their standards up to those of the best boards in the industry. The regulator will be providing regular feedback on what it sees as examples of best practice, she promised.
Here are some other extracts from Rowell’s speech.
On underperforming boards
“A number are some way off implementing and giving effect to these policies. Others continue to place excessive reliance on service providers or have been unable to devote adequate time and focus and so are unfamiliar with their own policies and processes.
“The board should also be able to demonstrate that the relevant policies and processes they have in place are being followed.”
On investment strategies
“Are boards comfortable with the amount of risk being taken and how the performance and implementation of the strategy is being managed?
“In many cases, risk-appetite statements remain basic and need significant development before they become useful documents for trustees. As part of our interaction with boards, APRA’s focus will be on verifying that the risk appetite is actually informing the business and strategic planning of the trustee. The board should be setting and driving the risk appetite and we expect this to evolve over time.”
On monitoring fund managers
“We will expect trustees to have very sound understanding of the people and organisations involved in the investment process in order to be satisfied that they are meeting their member best interest obligations.
“Boards should also be asking if the information they receive is the right level of detail and frequency.”
It wasn’t all severity and instruction, however. Rowell offered praise for the progress made by funds so far.
“Trustees have generally made a solid effort in getting their policies updated to reflect the new prudential standards and guidance.”