A new set of online tools produced by the Australian Institute of Superannuation Trustees aims to help funds report on operational risk without the high cost and process that has weighed them down in the past.
AIST chief executive Eva Scheerlinck says the new offering includes a factsheet, a guidance note and a letter template for writing to investment managers, and will improve the process for funds hiring an investment manager.
“This will make it a lot easier for funds to make decisions,” Scheerlinck says. “There’s a lot of talk out of the [Hayne] royal commission about what costs are passed on to members and often due diligence framework for operational risk, while incredibly important, is also very expensive.
“Every fund has to go out and essentially get the same report from an investment manager. This should [save] time and money for everyone in the system and provide some consistency around the reporting.
“We can’t force anyone to do it but it’s helpful that [the Australian Prudential Regulation Authority] APRA has said this framework is a good, cost-effective way for funds to meet their [operational due diligence] ODD obligations.”
The strategy behind the new tools relies on what’s being called a ‘seller-pays’ approach. Under this arrangement, investment managers engage an independent ODD provider to review their processes. They then produce a report that can be given to any super fund considering investing with them, with the investment manager covering the cost of the report.
Scheerlinck explained the AIST has been working on this for four years – and more recently with the regulator, funds, investment managers and the Financial Services Council – to make sure there was broad buy-in at all levels.
CareSuper’s former manager of investments and current LUCRF Super investment committee member, Greg Nolan, played an important role in the design of the new framework, when he proposed an industry-led response to the ODD issue.
This initiated an AIST-led working group that spent the next few years on the project. The group included representatives from a broad cross-section of AIST members. Together, they hashed out the new strategy.
This framework is both a world first and an example of how a collective approach to regulatory requirements can shift the industry, the AIST states.
Earlier this year, APRA put the super industry on notice that it would be stepping up the monitoring of operational risk as part of its supervisory activities. The new AIST framework is closely in line with that warning.