APRA deputy chair Margaret Cole will leave the regulator at the end of her current term on 30 June 2026, bringing to an end a period that saw APRA significantly step up its enforcement efforts in an attempt to rein in what it saw as an industry rife with underperforming and overpriced funds.

In a March 2021 article announcing that Margaret Cole would join APRA as an executive board member, the Australian Financial Review dubbed the Cambridge-educated lawyer an “enforcer”. Over her four-year tenure at the prudential regulator, Cole has more than lived up to the monicker the Fin bestowed.  

Whether that approach has yielded the desired results is another question.

In the past few years, the relationship between APRA and industry has become more acrimonious. APRA, previously known for lighter touch regulation, is said to have grown increasingly belligerent. Arguments that once played out exclusively in the boardroom have begun to appear on the front page of the Fin. Many funds feel that they are being told what to do but not how to do it, leaving them to navigate a regulatory fog of war where one slip-up could have severe reputational or financial consequences.

For its part, the industry has exhibited a reluctance to embrace bog-standard features of other pension markets: better administration, better data security, more transparency around marketing expenditure, and a sharper focus on member outcomes.

A harder touch approach to the regulation of Australia’s enormous pension pool is understandable. With the APRA-regulated segment at $3 trillion and growing every day, there is little room for an approach that treats it as anything other than systemically important. Relatively recent financial history demonstrates the consequences of getting that wrong.

APRA’s drive to push funds harder on a range of regulatory issues stemmed in part from the Hayne royal commission in 2018, which pre-dated Cole’s arrival at APRA but set the tone for how the regulator would relate to the entities it regulated. 

“The regulators didn’t emerge from the royal commission unscathed,” Luke Barrett, a partner in law firm Gilbert + Tobin and a former general counsel and head of risk and legal services for UniSuper, tells Investment Magazine.

“There was encouragement from the royal commission that the regulators should be more active. And I think it’s also been a moment in time where the best financial interest duty has been legislated and APRA has been very, very active around that particular issue.”

While Cole herself was said to be willing to take on hard-to-prosecute cases during her time at the FSA, that regulator was criticised for taking a softer approach to regulation that, while popular with banks and financial institutions, could be said to have precipitated aspects of the GFC by allowing the proliferation of irresponsible lending and a failure to impose appropriate capital requirements on market participants.

Both at home and away, the spectre of light touch regulation haunts some of the century’s biggest financial failures. It is understandable that APRA would not want to see those failures repeated in Australia’s massive pool of retirement savings.

And Cole’s tenure at APRA has also seen greater public understanding of the enormous importance of superannuation to the Australian economy and the wellbeing of its people.

“For better or for worse, APRA has achieved what was, presumably, the intention of putting the spotlight on members’ best financial interests, and creating a zeitgeist where the industry knows that APRA is hawkishly watching the approach that funds take to the members’ best financial interest duty in a day-to-day sense,” Barrett says.

But what Cole will most likely be remembered for – and which APRA chose to highlight in its announcement that she was stepping down – are the Your Future Your Super (YFYS) reforms, some of the most sweeping and controversial updates to superannuation legislation since the introduction of the Superannuation Guarantee itself.

“Margaret oversaw the implementation of the Your Future, Your Super reforms which commenced on her first day at APRA,” John Lonsdale, APRA chair, said in a statement announcing Cole’s decision to step down.

“These far-reaching reforms were aimed at ensuring superannuation works in the best financial interests of all Australians and improving efficiency, transparency and accountability in the superannuation industry.”

Few in the industry disagreed with the need to remove expensive and chronically underperforming funds, of which there were a great many, but the YFYS test was, and is, deeply flawed – something that APRA executives have themselves admitted behind closed doors. Its relatively short existence has been characterised by multiple updates to align its benchmarks with reality, and it is on the brink of being overhauled by Treasury yet again.

APRA was not responsible for designing YFYS, but it enforced it and was happy to claim even potentially negative outcomes as a win for its approach – for example, the reduction in “underperforming” funds, achieved by pushing every fund closer to the same benchmarks, increasing both investment risk for members who should not be exposed to so much of it, and the chances that all funds could be caught in a synchronised selloff.

It is hard to square the introduction of potential system-level risks into superannuation with a regulatory approach designed to crush them. And it is in some ways symbolic of the more aggressive approach that APRA has taken to superannuation regulation over the last four years – one that, while having significant impact, might not have had the desired effect.