The Australian Prudential Regulation Authority (APRA) has obtained an undertaking from Approved Trustee, Beacon Funds Management Limited (Beacon), that will protect the members of the funds under its trusteeship pending their transfer to a new Approved Trustee.

Approved Trustees are licensed and regulated by APRA as managers of retail superannuation, and are required to hold $5 million in capital, or have equivalent backing.

Beacon is the Trustee of a variety of public offer funds including Pooled Superannuation Trusts and Master Trusts, corporate superannuation funds, and a number of small APRA funds.

Mr Brandon Khoo, APRA Executive General Manager, said that APRA was informed on 10 August that the Trustee had materially breached the minimum capital requirement of its licence. After meeting with Beacon Directors, APRA established that the Trustee had incurred substantial losses from trading in derivatives, which in turn led to a significant decrease in its capital position.

"The losses do not affect members benefits, as the derivative positions were held on the Approved Trustees own account, and not within the superannuation entities under its management. All derivative positions in the superannuation entities under Beacon management had been closed out prior to 30 June 2002, in accordance with a previous undertaking made to APRA by the Trustee," Mr Khoo said.

To ensure an orderly transfer of the funds under Trusteeship, the Beacon Directors have agreed to offer APRA an enforceable undertaking that allows the Trustee to continue in its current role whilst the transfer of funds is arranged. The deadline for all entities to be transferred is 15 November 2002, to give the Trustee time to complete the 2002 annual reporting process, including members annual statements.

The undertaking also provides for the Trustee, in consultation with ASIC, to fully inform members within the next two weeks of this latest development. The Trustee is also required to report to APRA in the form of weekly updates and an independent confirmation that the Trustee remains in a positive financial position.

The giving of the undertaking by the Trustees does not constitute an admission of any wrongdoing on their part.

Mr Khoo said, "This is the second occasion on which APRA has accepted an enforceable undertaking from a trustee since the relevant power was inserted into the superannuation legislation last year. Undertakings can be an effective means for addressing prudential concerns in a superannuation fund without imposing an undue financial burden, and can if necessary be enforced by application to the Federal Court."

APRA is the prudential regulator of the financial services industry including banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry. It currently regulates $1.5 trillion in assets for 20 million Australians.