The Australian Prudential Regulation Authority (APRA) has forecast a year of introspection in 2018 outlining a plan to undertake a comprehensive review of its superannuation frameworks. It will also introduce a package of reforms to close a ‘gap’ in strategy and business practices within registrable superannuation entity licensees (RSE licensees).

According to APRA’s 2018 Policy Priorities guide, the regulator is planning to launch a comprehensive post-implementation review of its superannuation prudential and reporting frameworks – the first of its kind since APRA was given the power to make prudential standards for RSE licensees back in 2012.

APRA says it will undertake a year-long review of the frameworks to determine whether they are still fit for purpose ‘given the pace of change in the industry’. The review will involve a public consultation process which is expected to start in early 2018 and run into the first half of 2019. APRA says it hopes to report on the initial findings of the review in early 2019, before considering how to implement the changes.

This consultation process represents an opportunity for the superannuation industry to provide feedback to APRA on the effectiveness of the current regulatory framework, including:

  • costs and benefits
  • whether the framework is meeting its objectives; and
  • whether any changes need to be made to enhance its effectiveness.

Considering the number of public consultations involving the superannuation industry, not to mention the Royal Commission, it will be a busy period ahead for funds trying to keep up with the volume of potential change.

Mind the GAP

In addition to a broad ranging review of its superannuation industry prudential and reporting frameworks, APRA released a consultation package in December 2017 which contains a number of reforms to address what it calls ‘a gap relating to the adequacy of strategy and business planning practices within RSE licensees’ business operations’.

The proposed package includes:

  • changes to the existing prudential standard SPS 220 Risk Management, relating to strategic and business planning and fund expenditure policies and processes;
  • a new prudential standard, SPS 225 Outcomes Assessment, requiring all RSE licensees to annually assess the outcomes provided to members using a broader range of measures;
  • new prudential practice guides to assist RSE licensees with their strategic and business planning and the outcomes assessment; and
  • amendments to SPS 250 to require RSE licensees to provide straight-forward processes for opting-out of all insurance products.

These reforms have been on APRA’s radar for a significant period and have been the subject of many public statements by the regulator. The consultation is open for public submissions until 29 March 2018. APRA expects the changes to be finalised by mid-2018, with implementation commencing from January 2019.

While the consultation process suggests some flexibility in the final package, the regulator has noted the reforms are aligned with the Treasury Laws Amendment (Improving Accountability and Membership Outcomes in Superannuation Measures No. 1) Bill 2017 currently before the Parliament. APRA says should the Bill pass, it “will consider what changes may need to be made to align the prudential framework with the final legislative amendments”.

Operational Risks

The regulator also says it is looking to align prudential requirements with industry better practice and community expectations for operational security risks across a number of industries. APRA says its intention is to ‘issue broad-based expectations for operational risk and resilience that align to the overarching risk management framework’, and has commenced updating standards and guidance on outsourcing, business continuity and information security. These reforms will apply to the banking, insurance and superannuation sectors.

An information security risk management standard will be the first cab off the consultation rank, with formal consultations set to commence in the first half of 2018 and a final standard released by the end of 2019. Consultations on updates to outsourcing, business continuity and operational risk will commence in the second half of 2018.

APRA has also flagged that it expects changes to the prudential framework for the provision of life insurance in superannuation and innovative post-retirement products over the medium term, though it does not anticipate consulting on these issues over the coming year, ‘unless Australian Government priorities necessitate’.