The FAQs on this page refer to provisions of APRA’s prudential standards for superannuation and proposed legislative amendments which have not yet become law. Accordingly, the views and draft provisions set out in these FAQs are subject to change. The FAQs may also include links to external websites that are beyond APRA’s control. APRA accepts no responsibility for the accuracy, completeness or currency of the content of these FAQs.
Note: the numbering of these questions is fixed and will not change as new questions are added.
APRA has archived a number of FAQs which contain matters that are covered in the final prudential standards (released in November 2012) or in the draft prudential practice guides (released in December 2012).
Updated: 29 October 2013
FAQ 10: What are APRA's expectations in respect to potential transitional exemptions from prudential standards? Does APRA expect that there will be a number of RSE licensees applying for transitional exemptions from particular aspects of the prudential standards?
FAQ 63: Does the introduction of the superannuation prudential standards affect the conditions on my RSE licence?
FAQ 66: Section 29WA(2) of the Superannuation Industry (Supervision) Act 1993 requires that a RSE licensee must treat contributions in relation to which the member has not given any direction as a contribution to be paid into a MySuper product from 1 January 2014. What are APRA’s expectations regarding RSE licensees engaging with employers where the RSE licensee is the licensee of an RSE that is not seeking MySuper authorisation or is seeking MySuper authorisation but may not have a MySuper authorisation at 1 January 2014? NEW
FAQ 30: What is APRA’s view on the distinction between the work of the internal auditor versus the work of the external auditor?
FAQ 58: When do the auditor rotation requirements commence?
FAQ 44: Can the conflicts management policy required by Prudential Standard SPS 521 Conflicts of Interest (SPS 521) jointly address the requirements of SPS 521 and ASIC Regulatory Guide 181 (RG 181) if the RSE licensee also holds an Australian Financial Service Licence?
FAQ 26: What are APRA’s expectations on the requirement to assess the fitness and propriety of responsible persons from material outsourced service providers, including whether there can be a reduced assessment process where the service provider is a prudentially regulated entity?
FAQ 64: Paragraph 29 of Prudential Standard SPS 520 Fit and Proper (SPS 520) requires an RSE licensee to complete a fit and proper assessment before a person becomes the holder of a responsible person position. What are APRA’s expectations regarding this requirement where an RSE is required to appoint the Auditor-General (or equivalent statutory appointment) as RSE auditor?
FAQ 55: If an RSE licensee decides to pass the cost of establishing a reserve for the purposes of the ORFR to members, would this constitute a fee? If so, how is this applied to MySuper members? Must it be charged as an administration fee?
FAQ 59: What are APRA’s expectations in relation to the ORFR for RSE licensees of unfunded defined benefit (DB) funds?
FAQ 61: Do I need to comply with the existing conditions on my RSE licence relating to capital once the prudential standard on ORFR takes effect on 1 July 2013?
FAQ 65: What are APRA’s expectations regarding liability and indemnity provisions relating to sub-contracting in outsourcing agreements? NEW
A: APRA expects that all RSE licensees will be in a position to comply with the new requirements from 1 July 2013. However, APRA recognises that in some instances an RSE licensee may be working towards compliance, but may not have been able to fully comply for good reasons. In such instances, RSE licensees will need to apply to APRA for a transitional exemption and APRA will determine whether a transitional exemption is warranted.
A: The SIS Act empowers APRA to make prudential standards. To the extent that there is any inconsistency between the terms of a prudential standard and the terms of a licence condition, the prudential standard prevails.
Licence conditions imposed prior to the commencement of prudential standards will continue to apply to the extent that the condition is not inconsistent with the prudential standards.
APRA will be conducting reviews of RSE licences as a result of the introduction of the prudential standards. This will commence after an RSE licensee has met its operational risk financial requirement (ORFR) target amount and may result in the amendment or removal of conditions on RSE licences as discussed below. APRA supervisory staff will liaise with RSE licensees prior to making changes to licence conditions.
APRA’s general approach to each of the categories of general additional RSE licence conditions will be:
- In relation to A (Provision of information conditions): with the exception of notification requirements in condition A3, APRA expects to ultimately revoke these conditions. APRA may also impose a new condition to require notification of a change in name of the RSE licensee, an RSE or a MySuper product.
- In relation to B (Insurance and contingency conditions): APRA expects this condition will be revoked as SIS Regulations and prudential standards now operate in this area. SIS regulation 4.07E provides that an RSE licensee is prohibited from providing insured benefits for members unless they are supported by an insurance policy from an insurer. In other words, an RSE licensee is not able to self-insure. There are some transitional provisions in the regulation, and some exceptions for defined benefit funds.
- In relation to C – G inclusive (capital conditions): these conditions articulate the method to be used by an RSE licensee to meet capital requirements under s. 29DA of the SIS Act. The prudential standards will have an effect on the capital conditions as the capital requirements are being replaced by the ORFR. Further details on how meeting the ORFR will affect your compliance with the capital conditions are in FAQ 61.
- Condition H (definitions) will be retained.
- In relation to the requirement to establish a policy committee (where imposed): this condition will be retained.
Licence conditions that have been specifically imposed on a particular RSE licensee will be reviewed on a case by case basis. Variation or revocation will be a matter for consideration by APRA supervisory staff.
A: APRA expects that an RSE licensee who does not expect to have an authorised MySuper product as at 1 January 2014 will, as soon as possible, inform all employer sponsors that the RSE will be unable to receive default contributions from 1 January 2014 in the absence of all applicable members completing ‘choice’ documentation. Employers should be advised, within sufficient time, to make necessary arrangements to identify a fund that is authorised to offer a MySuper product into which they can make default contributions from that date.
A: The external auditor has a specific role and duties that it must perform, such as the completion of the annual audit report. This report must include statements of the auditor’s opinion on matters including compliance with prudential requirements and compliance with the risk management framework (which includes the risk management declaration).
One of the roles of the internal auditor is to provide the board and the Board Audit Committee with further independent assurance that the risk management framework and the operational risk financial requirement are appropriate, consistently implemented and effective. This is a broader, less prescribed role with an enhanced focus on matters such as the adequacy and effectiveness of approaches.
A: Paragraph 64 of Prudential Standard SPS 510 Governance states that individuals who play a significant role in the audit of an RSE for five successive years, or for more than five years out of seven successive years, cannot continue in that role until a further two years have passed.
Paragraph 64 commences on 1 July 2013. RSE Licensees must ensure audit arrangements in respect of years of income that commence on or after 1 July 2013 comply with this requirement.
If an RSE licensee considers that there are special circumstances that warrant exemption by APRA, they should discuss this with their APRA Responsible Supervisor.
A: One conflicts management policy could address the requirements of SPS 521 and RG 181. APRA would expect the RSE Licensee to appropriately address in such a single policy any differences in the provisions and scope of SPS 521 and RG 181 so that all the requirements of SPS 521 are also met.
A: APRA expects RSE licensees to take a reasonable approach to assessing the fitness and propriety of responsible persons that are employed by a service provider; the obligation is on an RSE licensee to satisfy itself that all of the responsible persons relevant to their business operations have been assessed as fit and proper.
The practical extent of a fit and proper assessment for a responsible person employed by a service provider will depend on the comfort that the RSE licensee has about the assessment/recruitment processes the service provider has in place. If the RSE licensee has any doubts about the rigour of the service provider’s processes to ensure that their staff are fit and proper, the RSE licensee would be expected to undertake a more direct assessment. If the external entity undertakes police checks, however, the RSE licensee is entitled to rely on those police checks.
A: APRA acknowledges that in the case of statutory appointments, it may not be possible for the RSE licensee to undertake the fit and proper assessment before an individual is appointed as Auditor-General and therefore as a responsible person of the RSE licensee. In such circumstances, APRA expects that an RSE licensee will notify APRA about the personal details of the individual who has been appointed to the position within 14 days (as required by paragraph 45 of SPS 520 and Reporting Standard SRS 520.0 Responsible Persons Information) and will ensure that the fit and proper assessment is completed within 28 days of the person’s appointment.
A: If the RSE licensee decides to fund the ORFR through charges to member accounts, then APRA would expect this to be reflected in administration fees.
A: SPS 114 applies to all RSE licensees for the purpose of paragraph 52(8)(b) of the SIS Act. SPS 114 requires each RSE licensee to determine and maintain an appropriate ORFR target amount of financial resources that reflects the operational risks of the RSE licensee’s business operations. APRA recognises that in some circumstances, an RSE that has unfunded DB liabilities may have entered into a government funding arrangement that limits the RSE’s direct exposure to operational risks relating to those DB liabilities. The funding arrangement may be a relevant consideration for the RSE licensee, which may result in a lower ORFR target amount than for other types of DB funds.
A: Yes, unless you already meet your ORFR target amount on 1 July 2013.
RSE licensees that hold their ORFR target amount as at 1 July 2013 will not be required to comply with the capital conditions on their licences after 1 July 2013. Those RSE licensees must notify APRA within 10 business days after 1 July 2013 that their ORFR target amount was met on 1 July 2013.
If RSE licensees are relying on the transitional arrangements in SPS 114 to build up their ORFR target amount, APRA confirms that those transitional arrangements end once their nominated ORFR target amount has been met for the first time. The RSE licensee must notify APRA within 10 business days when the ORFR target amount is met for the first time. The RSE licensee will not be required to comply with the capital conditions on its licence once the ORFR target amount is met.
A: Prudential Standard SPS 231 Outsourcing (SPS 231) requires that an outsourcing agreement must, at a minimum, address a number of matters, including liability and indemnity, sub-contracting and insurance. Paragraph 22 of SPS 231 provides that there must be an indemnity to the effect that the service provider is responsible to the RSE licensee for the actions of any subcontractor. This requirement is independent of any rights or action the service provider may have against the subcontractor.
APRA’s view is that whilst SPS 231 requires the outsourcing agreement to cover ‘any liability’, this provision does not prohibit the RSE licensee and the service provider agreeing to a limit on the service provider’s liability and indemnities. This agreement between the RSE licensee and the service provider may, for example, be to reflect accepted business practices. This position is reflected in Prudential Practice Guide SPG 231 Outsourcing (SPG 231), which makes allowance for situations where liability for negligence may be limited and includes reference to sub-contracting arrangements. APRA also expects that any possible limitations in the liability and indemnity provided under the contract be considered within the RSE licensee’s risk management framework and when considering a suitable level for the operational risk financial requirement target amount and tolerance limit.
Note: These FAQs are published for discussion purposes only. The content of these FAQs is not legal advice. Users are encouraged to obtain professional advice about the application of any legislation or prudential standard to their particular circumstances. Users should exercise their own skill and care when relying on any material contained in the FAQs. APRA disclaims any liability for any loss or damage arising out of any use of or reliance on these FAQs.