Stern of manner, speedy in delivery, Helen Rowell, member at APRA, stopped CMSF delegates from feeling too pleased about themselves, by pointing out areas in which funds must do better.
Change management
Rowell warned that with much regulatory change ahead from the government reaction to the tax review and the Financial System Inquiry the ability of trustees to manage change was of interest to APRA. “All trustees need to be looking ahead and proactively considering how they should tackle these inquiries,” she said.
Conflicts of interest
APRA conducted thematic reviews of insurance management and conflicts of interest in 2014. Rowell said she was much more concerned about the conflicts of interest review.
A third of the 40 funds reviewed by APRA were considered to have conflicts of management frameworks that were weak or vulnerable to conflicts of interest. These funds, said Rowell, will be receiving letters informing them of this over the next week, with recommendations on the actions they needed to take. APRA will also be informing funds of enhancements they can make in this area over the coming months.
One concern is where funds did not acknowledge directors who were directors of other bodies not absenting themselves from decisions that could be linked to such organisations.
Rowell said APRA would also take a close look at the Royal Commission into the activities of trade unions and how it informed industry practice in the area of conflicts of interest.
Independent directors
APRA generally fights shy of directly endorsing the use of independent directors, but came closer than ever in Rowell’s speech. “Experience over many years over all the industries we regulate suggests that having at least some independent directors on board, will support sound governance outcomes,” she said.
To this end she called for ongoing improvements in the appointment and selection processes of directors and in the implementation of “robust performance assessments” of directors.
Rowell linked the need for a broad range of skills and capabilities on boards as one of the key ways of meeting APRA’s governance and prudential risk standards.
Remuneration
APRA has recently conducted a review of a sample of funds to assess the quality and consistency of information being disclosed on fund websites. “We would have to say we were pretty disappointed with what we found,” said Rowell.
She reported anomalies and apparent errors in the remuneration disclosed on fund websites and to APRA, particularly for directors where remuneration was calculated as zero. APRA also could not find disclosure on some fund websites.
“There is room for considerable improvement in this area and we will be following up on this,” warned Rowell.
She noted that where the disclosure on a website was incorrect or misleading it was a matter for ASIC.
Retirement income products
Rowell’s message around retirement products was softer, urging caution around the development of product ranges and monitoring of providers.
Her biggest concern was around the offer of products with guarantees for members. APRA will look at the arrangements agreed with providers very closely. For more ordinary pension products, she urged funds to ensure they had the necessary level of administration, resources and advice and that they had properly considered the cash flow and liquidity.
She noted that not all funds would want to offer a range of retirement products or even be able to offer them and that they would need to partner with other organisations and that in this case robust governance and oversight was needed.
Fees and costs
APRA has called for funds to question the trade off between the choice of funds and insurance offerings to members, with the cost of offering them. “There are significant complexities in the super system and there is scope for efficiencies to be enhanced in many areas,” she said. A recent survey by APRA found there were a total of 40,000 investment options on offer to Australians for their superannuation, a figure Rowell cited as ‘staggering’. “We find it hard to believe those investment options are really needed,” she said.
