The Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012 (the Bill) confers on APRA a prudential standards making power for regulated superannuation entities (RSEs).

Following the release of a Discussion Paper on APRA’s proposed approach to implementation of the prudential standards on 28 September 2011 (click here to see Corrs’ In Brief regarding the Discussion Paper) APRA invited comments on its proposals.  

On 27 April 2012 APRA published its Response to Submissions together with eleven draft Prudential Standards (Click here to view the Response and draft Prudential Standards). This In Brief provides a summary of APRA’s Response to Submissions and the draft Prudential Standards together with commentary on areas we consider may be of interest to our clients.  

NEED TO KNOW

While industry was largely supportive of APRA’s proposals, APRA has revised a number of key aspects of its proposals in the Discussion Paper in response to the submissions made and its general engagement with the superannuation industry. APRA has released the following eleven draft Prudential Standards for comment:

  • Governance (SPS 510)
  • Operational Risk Financial Requirement (SPS 114)
  • Defined Benefit Matters (SPS 160) 
  • Conflicts of Interest (SPS 521)
  • Insurance in Superannuation (SPS 250)
  • Investment Governance (SPS 530)
  • Risk Management (SPS 220)
  • Outsourcing (SPS 231)
  • Business Continuity Management (SPS 232)
  • Audit and Related Matters (SPS 210)
  • Fit and Proper (SPS 520).  

The first five of the Prudential Standards are prudential standards specific to superannuation. The remaining six seek to harmonise regulatory requirements for superannuation with those that already apply to other APRA-regulated industries such as insurance and banking. A twelfth prudential standard governing the transition to MySuper will be released as part of a consultation package relating to MySuper authorisations, expected in May 2012.  

APRA is inviting comment on the draft Prudential Standards by 20 July 2012.  

APRA will also consult on enhancements to the statistical collections and publications for superannuation, and the Prudential Practice Guides (PPGs) that will support the prudential standards and release them by September 2012.  

It is proposed that the Prudential Standards will then be finalised with a view to registering them on the Federal Register of Legislative Instruments in December 2012.  

The first tranche of PPGs will be released for comment in December 2012 with the MySuper authorisation process commencing in January 2013.  

The majority of provisions in the Prudential Standards take effect on 1 July 2013, however there will be transitional provisions in respect of outsourcing, business continuity management and insurance prudential requirements. These transitional provisions will commence on their date of registration.  

From this date (expected to be in December 2012) RSE licensees must ensure every new outsourcing arrangement complies and any existing arrangement must also be reviewed for compliance. If existing contractual arrangements do not comply, APRA will expect RSE licensee to take all reasonable steps to renegotiate the contract. If the RSE licensee determines that it would not be in the best interests of members to renegotiate the contract, APRA will require the RSE licensee to demonstrate why the arrangement should continue.

DRAFT STANDARDS AND KEY APRA CHANGES

Governance

Click here to view table.

Conflicts of interest

Click here to view table.

Risk management

Click here to view table.

Outsourcing

Click here to view table.

Investment Governance

Click here to view table. 

Operational risk financial requirements

Click here to view table. 

Defined benefit funding and solvency

Click here to view table. 

Business continuity

Click here to view table. 

Insurance in superannuation

Click here to view table. 

Conclusion

Further consultation is to take place with respect to each of these draft Prudential Standards. It appears from its response to the submissions made in respect of the Discussion Paper that APRA’s approach from a policy perspective has largely been settled, and the focus will now turn to the detail of the drafting of the Prudential Standards. RSE licensees should have a greater understanding of the scope of the new obligations, subject to some refinements that might arise from the passage of the Bill through Parliament, or the finalising of the Prudential Standards.  

It would therefore be prudent for RSE licensees to start considering the impact these changes might have on current arrangements. Particular consideration will need to be given to the compatibility of current outsourcing arrangements with the new proposed regime. It is proposed that RSE licensees will need to review each of its existing agreements for compliance with the new standard and seek to negotiate improvements where those arrangements do not reflect the requirements. Any new arrangements that RSE licensees seek to establish should be tested against the proposals.