Prudential standards for superannuation Helen Rowell Execut ive - - PowerPoint PPT Presentation

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Prudential standards for superannuation

Helen Rowell

Execut ive General Manager S upervisory S upport Division 17 May 2012

Outline of session

• Prudent ial S

t andards for S uperannuat ion

– Overview and features

• Implement at ion Timeline
• What ’ s new for t he Board

– The framework concept – Governance / fit and proper – Managing conflicts of interest – Risk management – Outsourcing – Operational risk financial requirement

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Prudential framework for superannuation

Now

S IS Act S IS Regulations Guidance

In the future

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S IS Act Prudential S tandards

S IS Regulations

Guidance

Features of prudential standards

• Principles based approach

– Focus on frameworks, policies, documentation – Trustees to demonstrate to APRA how they are complying

• Benefit s

– Simpler as key requirements in one place and plain English drafting – High level principles mean enhanced flexibility – Harmonisation where relevant

• Cont ent

– Implementing certain Stronger Super reforms – Moving current requirements and guidance from licence conditions,

• perating standards, circulars, PPGs, FAQs etc

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12 proposed prudential standards

Super ADIs GIs LIs Behavioural standards

Governance SPS 510 CPS 510 CPS 510 CPS 510 Fit and proper SPS 520 CPS 520 CPS 520 CPS 520 Out sourcing SPS 231 CPS 231 CPS 231 CPS 231 Business cont inuit y management SPS 232 CPS 232 CPS 232 CPS 232 Risk management SPS 220 GPS 220, 221 LPS 220 Audit and relat ed mat t ers SPS 310 APS 310 GPS 310, 311 LPS 310, 320

Standards specific to superannuation

Invest ment governance SPS 530 Conflict s of int erest SPS 521 Defined benefit mat t ers SPS 160 Operat ional risk financial requirement SPS 114 Insurance in superannuat ion SPS 250 MyS uper t ransit ion SPS 410

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Implementation timeline

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Dec 11 Mar 12 Jun 12 Sep 12 Dec12 Mar13 Jun 13 Sep 13

CONS CONS CONS

Final PS Applications

• pen

PS commence MySuper products Reporting commences Default contributions First data due

What’s new for the Board?

• Great er clarit y t hat board has ult imat e responsibilit y
• Requirement s aligned wit h int erest of members and

beneficiaries

• Great er t ransparency and account abilit y of boards
• Board act ivit ies will increasingly focus on assessment s,

approvals, oversight , covenant s

• Act ivit ies of RS

E licensee must be appropriat e t o t he size, business mix and complexit y of t heir business operat ions

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What’s new for the Board?

S ubst ant ial impact on Board approach and act ivit ies:

• The framework concept
• Governance / fit and proper
• Managing conflicts of interest
• Risk management
• Outsourcing
• Operational risk financial requirement

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The framework concept

• Frameworks appear in several st andards:

– Investment governance (SPS 530) – Conflicts management (SPS 521) – Risk management (SPS 220) – Insurance management (SPS 250)

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Example of a framework – investment governance “ An invest ment governance framework is t he ‘ t ot alit y of syst ems, st ruct ures, policies, processes and people’ t o address t he RS E licensee’s responsibilit ies wit h regards t o invest ment s of each RS E wit hin t he RS E licensee’s business operat ions. This includes generat ing ret urns t o meet invest ment obj ect ives while managing and monit oring all sources of invest ment risk.”

Governance / fit and proper

• Annual board assessment process and board renewal policy
• Remunerat ion policy t hat aligns remunerat ion and risk

management

• Board-approved fit and proper policy, broader responsible

person definit ion:

– Aligns with cross-industry standard – Includes persons within connected entities

• Fit and proper assessment process:

– Can leverage off, but not be replaced by, assurances from service providers and professional memberships

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Managing conflicts of interest

• Give priorit y t o t he int erest s of beneficiaries when t here is a

conflict (SIS Act trustee covenants (Part 6 s.52))

• Conflict s management framework and t rust ee covenant s

(which override governing rules) t o t rigger reviews of exist ing cont ract s wit h relat ed part ies

• Conflict s management framework t o provide reasonable

assurance t hat all conflict s are being clearly ident ified, avoided or prudent ly managed

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Risk management

• Risk management framework
• Account abilit y - risk management declarat ion
• Risk appet it e st at ement (art iculat ion of risk appet it e and

t olerance)

• Risk management funct ion
• Alignment of risk management framework and business plan

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Outsourcing

• High levels of out sourcing in t he super indust ry
• New requirement s and covenant s necessit at e reviews of all

arrangement s wit h service providers

• Appropriat e due diligence
• Comprehensive out sourcing agreement , for all out sourced

mat erial business act ivit ies

• Ongoing monit oring of service providers performance

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Operational Risk Financial Requirement (ORFR)

• New requirement t o hold financial resources t o address losses

arising from operat ional risks

• Financial resources t o meet t he ORFR can be t rust ee capit al, a

fund reserve or combinat ion of bot h

– Replaces existing public offer trustee capital requirements, but does not replace need for other reserves

• Amount is det ermined by t he RS

E licensee

– Based on both identified and unidentified risks of each RSE – Approaches expected to evolve as risk management frameworks evolve – Not simply 0.25 per cent of assets, but this may be a benchmark for enhanced discussions to j ustify appropriateness of approach

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Key messages

• S

ubst ant ial changes for all indust ry part icipant s

• Early engagement will enable effect ive t ransit ion
• S

t art implement at ion now, for example:

– Review / gap analysis against draft standards – Develop frameworks – Change management – Talk to APRA supervisors (if haven’ t already)

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Prudential standards for superannuation

Helen Rowell

Execut ive General Manager S upervisory S upport Division 17 May 2012