APRA’s role in superannuation fund governance

APRA’s recent statements in respect of proposed changes to superannuation fund governance give an indication of its views with respect to the governance of other entities it supervises: banks, credit unions, building societies, life and general insurers and private health insurers.

The Superannuation Legislation Amendment (Governance) Bill requires that one-third of a superannuation fund’s directors and trustees must be independent. The Bill proposes giving APRA the power to determine whether directors and trustees are independent or not independent.(Background).

In a recent speech APRA member Helen Rowell said:

For a prudential regulator like APRA, which emphasises prevention of problems rather than after-the-event punishment, our current powers to address governance-related concerns, including issues relating to board composition and fit and proper, are quite limited.

Speaking to the Senate Economics Legislation Committee in support of APRA’s submission, Ms Rowell said:

APRA has issued prudential standards that touch on governance and fit and proper management of conflicts of interest. That sets expectations for boards that boards need to meet. Those requirements are substantially principle-based rather than prescriptive. So it relies on the boards to form their view of what is appropriate and to act accordingly. APRA reviews that and where we have concerns about practices then we would have a conversation and try to get improvements in approach. The limitation that we see in relation to those powers is that for us to step in and force change if the board or fund is reluctant to address the concerns that we have, we have to wait for there to be a material breach that seriously impacts on members, potentially, and that would require us to effectively take disqualification action, replace the board or do something quite drastic. In our view, our ability to enhance the governance practices, particularly of those boards that we might describe as somewhat recalcitrant, is quite difficult.

The Superannuation Legislation Amendment (Governance) Bill is still being considered by the Senate.

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