APRA is gearing up for a “deep dive review” of unlisted asset valuation practices in the next six months as one of four regulatory priorities it has outlined for the superannuation industry.
Large to mid-sized funds with “material unlisted asset exposures” should expect a cross-sectional review, while all registrable superannuation entities (RSEs) investment governance self-assessments will also be examined.
Speaking at the Investment Magazine Chair Forum on Thursday, attended by board chairs, deputy chairs and investment committee chairs of major industry and retail funds, APRA deputy chair Margaret Cole said the fundamental goal for super funds to demonstrate is that they’ve paying sufficient attention to new rules.
This came after an updated prudential standard SPG 530 last year, in which APRA proposed that funds revalue their unlisted assets at least quarterly, and more frequently in volatile times.
Cole said this does not mean APRA is expecting a “long, extended” review of unlisted assets every three months, as the frequency is more of an expectation for funds to have a system in place that identifies the issues in relation to unlisted holdings that responds to the environment around them.
“We are a principles-based regulator and we are… putting back to you the responsibility to do this job,” she told the crowd in Sorrento, Victoria.
“But you will be accountable in the context of the rules and the framework – just as we are when we go and answer our parliamentary committees.”
Bigger funds including AustralianSuper and Cbus have indicated at the Investment Magazine Fiduciary Investors Symposium in November that the higher frequency the regulator is requesting is not a negative development, but the problem lies in the complexity and the cost of doing so.
End of the runway
Cole also flagged the commencement of prudential standard CPS 230 on operational risk management in mid-2025. She warned that the runway to implementation is getting shorter.
“Any trustees who have yet to start implementation will be on a fast track to non-compliance,” she said.
“We are aware that there are some trustees who have decided to take a ‘wait and see’ approach, by putting their preparations on hold until APRA releases final guidance. That’s a problem because many super funds still have a significant amount of work to do.”
An example of operational risks is cyber-attack. In December 2023, industry fund NGS Super was imposed additional licence conditions by APRA to conduct an operational effectiveness review and provide assurance about remediation activities, after it was already ordered to hire external advisers to review cybersecurity.
Cole said identifying the resources needed to control operational risks will be substantial against each “critical operation” – that is, where an operational failure would have severe negative impact on members. This applies to areas managed by both internal and external teams.
“If you outsource processes supporting any critical operations and something goes wrong in the delivery of service to your members, you remain on the hook,” she said.
Funds on notice, again
APRA’s new year priorities were laid out in a letter to all regulated superannuation, banking and insurance entities from chair John Lonsdale on Wednesday.
He said it is the first time the regulator has specified which groups of entities a particular initiative will apply to and, consequently, they have been put on notice to be prepared.
“By doing so, APRA intends to provide entities with a better sense of what to expect over the next six months,” Lonsdale said.
Other APRA initiatives such as promoting retirement outcomes will continue in the new year. The regulator is finalising an update for prudential standard SPS 515, which will include expectations for supporting the Retirement Income Covenant. The process is expected to be completed in the first half of 2024.
A Treasury consultation is also currently underway on means of improving retirement outcomes, which could see a MySuper-style default product requirement, comparison tool and performance test package introduced in the retirement phase as it cracks down on funds for perceived slow progress.
Other sector-specific initiatives include an investigation into underperforming choice products, alongside cross-industry focuses such as managing climate risks.
Lonsdale acknowledged most of the regulatory initiatives are not new, but many will not only carry on in the next six months but well beyond the period.
“Entities should read these industry-level priorities in conjunction with their entity-specific supervisory programs, which are calibrated to their tier and stage,” he said.
“APRA will remain adaptable to changes in the external environment and will adjust these priorities as needed, to ensure the industries it regulates can continue to respond to new and emerging risks.”
Note: This article was updated on 1 February to include additional comments from Margaret Cole.
