Will APRA begin to flex its muscle in the wake of Trio and Storm?

While APRA has recently been handed additional powers it remains to be seen whether it is prepared to use these new powers.

Related: Do super funds need more time to prepare for Stronger Super?
Related: Superannuation corporate governance and the push to improve standards

Mike Taylor, managing editor, Super Review: Gerry, you talk about the additional muscle that has been given to APRA, but on the available evidence, they haven’t really exerted any of the particular muscle they have to date.

Some people might talk about the Trio collapse and what happened there, and suggest that APRA may have actually exercised more of its regulatory power than it did.  

VIEW ALL

View all

Do you really think APRA is a body equipped and willing to use that additional power?

Gerard Noonan, chairman, Media Super: Well, we’re providing a substantial tranche of monies to ensure they are well employed.

I look back over a period of a couple of decades of what we have done, and there is $1.2 trillion or $1.3 or $1.4 trillion, depending on what day you are talking about, of monies in the system. 

And other than … you can name them on one hand, Storm, Trio … there’s actually a quite limited number of malfeasances or collapses within a system that’s been going for three decades nearly, and has amassed the fourth largest pool of pension capital in the world.

There’s a lot of money there, you’d expect things to have gone wrong at some stage.

It does tell me that we’ve actually been pretty well regulated, the regulator themselves have got the kind of a balance pretty right.  

Look, they might have been a bit out to lunch on some of the issues that you mentioned, but generally speaking they have been a pretty good regulator. 

These [new] prudential standards are quite significantly changed from that which they’ve had in the past; it’s been much more a sort of a self-regulatory structure. So it’ll be interesting just to see how we deal with that.  

Mike Taylor, managing editor, Super Review: Alex, you’ve actually had an experience in regulator-land, what’s your take on the additional powers going to APRA?

Alex Hutchison, chief executive, Energy Industries Super: I think Mike, you’re seeing a harmonisation between APRA’s view. A lot of the superannuation standards are similar to what ADIs [Authorised Deposit-taking Institutions] have now, so it’s almost a reflection on how the diversified institution teams run their surveillance of ADIs.

So there is some degree of cooperation between those modes of operation. 

I agree that if you really look at the regulators as a whole, they’ve done quite well.

The biggest challenge I think they have – and maybe the Trio example is that, without being too topical – is that regulators need to have market intelligence and respond to what happens in the marketplace, and for any enforcement organisation or prudential regulator, however you want to term it, that’s quite difficult.

 I think in relation to the powers, it’s an interesting point to note that ASIC [Australian Securities and Investments Commission] is built more as a pure enforcement agency with more of a hard edge, whereas APRA is truly a prudential regulator that, without being too controversial, doesn’t necessarily have a lot of corporate experience in prosecutions, whereas ASIC does.

So I think it’ll be interesting to see what happens with those prudential powers. But I think, you know, you’re never going to win as a regulator, something’s always going to happen, and the issue they have is really trying to stay up to date with what’s happening in the industry.  

Mike Taylor, managing editor, Super Review: Andrew, you’ve got to deal with these matters for the FSC [Financial Services Council], what’s your take on the additional powers, and how they might be used?

Andrew Bragg, policy director, Financial Services Council: I think APRA’s been an effective prudential regulator who has focussed on governance and financial institutions, that’s its mandate.

Now it’s changing into more a sort of product-focussed regulator almost, actually approving MySuper options and whatnot.  

The powers that they’ll get out from the super reforms will give them the look-through capacity – which some may say in the Trio case they didn’t have – to actually see where funds, ultimately funds of funds, were invested in different jurisdictions.

They will have that power, so presumably that will arm them with the capacity to ensure there are no Trio repeats.  

Mike Taylor, managing editor, Super Review: Russell?

Russell Mason, partner, Deloitte: I’ve always been a supporter of APRA. I think they’ve done a good job, they’re a regulator that’s always been willing to talk to the industry, whichever side, they’ve been willing to listen, and what a lot don’t see is what APRA quietly achieves behind the scenes.

There are many cases of other funds that could have easily gone off the rails without APRA stepping in, and exercising its influence.

So, I think it was said earlier, we talk about Storm and Trio, but considering the vast number of funds and the amount of money in the system, I think APRA’s done a great job.

As I’ve said, there have been other issues that have come up that APRA have chosen not to be public about, but have resolved a problem ultimately in the best interest of the members of those funds.  

Mike Taylor, managing editor, Super Review: Frank, have you got a view of that?

Frank Crapis, head of industry fund group insurance, CommInsure: From our point of view as a life insurer, we’ve been regulated by APRA for some time; we’ve followed that model.

The governance that we have in place, through the CBA, but also through that regulatory environment, is very strong, and quite comprehensive.

 We’ve been able to leverage off that governance and assist our existing clients in terms of how we’ve looked at the draft prudential standards and transformed that into a template for them to use for their own governance, in terms of meeting the prudential standards.

So we’ve leveraged off our experience across that, and seen how we can provide that to the funds, and given them value. Again we’ve done that through the draft template that we’ve provided funds. 

Mike Taylor, managing editor, Super Review: And Tim?

Tim Buskens, head of industry initiatives, Australian Administration Services: I think we shouldn’t forget there’s another regulator that’s increased its powers – the ATO.

They’ve got greater powers in the data standard SuperStream space, penalty ability, to levy penalties on funds and employers, and also as Gerard mentioned, they’ve got a greater data collection power as well, they’re going to use that.

I think the test for me in this space – with the ATO increasing in powers and APRA’s increasing powers – is how they’re going to work together.

I think there’ll be a greater need for this, and success will be defined on how those regulators actually work together in a coordinated fashion across the super space, and how they share that information and use that power for obviously the benefit, and not to double up and trip over themselves.  

Alex Hutchison, chief executive, Energy Industries Super: That’s probably a good point, because when ASIC took over the ACCC’s [Australian Competition and Consumer Commission’s] powers with respect to false and misleading conduct, there was a MOU [memorandum of understanding] signed between ASIC and the ACCC. 

Effectively, right now, what you’re going to have with these changes is the potential for the regulators to regulate the same area with respect to product.

So perhaps maybe one approach, that was quite successful, is for ASIC and APRA to maybe enter into an MOU, loathe as I am to give the regulators any advice as I sit here today, but I thought that was something that worked quite successfully with the ACCC – so maybe that’s something, for all I know, they’re probably negotiating right now.