The Australian Prudential Regulation Authority (APRA) today welcomed the Federal Governments announcement of reforms aimed at strengthening the safety and soundness of the superannuation system, notably the new licensing requirement for all APRA regulated superannuation funds.

APRA Chief Executive Officer, Graeme Thompson, said the reforms announced by the Minister for Revenue and Assistant Treasurer, Senator Helen Coonan, would provide the community with confidence that its retirement savings will be managed in funds meeting substantial requirements for competence and for technical capacity.

"In the past, firms could establish superannuation schemes for employees without advance approval by APRA," Mr Thompson said.

"This is notwithstanding that licensing is the first line of defence for prudential regulators worldwide in banking and insurance. Understandably, Australian workers have the right to expect similar protection for their retirement savings."

Under the current Superannuation Industry (Supervision) Act, only Approved Trustees that offer retail superannuation to the general public require licensing. It does not cover trustees established to manage employer-sponsored superannuation within a particular workplace or industry. This generally comprises a board of directors or team of people that equally represents the employer and the employees.

"We see the licensing power as filling a major gap that has existed in the superannuation supervision legislation. It will give APRA stronger powers to keep unsuitable people out of the industry and over the conduct of funds through the use of licence conditions," Mr Thompson said.

APRA currently regulates more than 11,400 funds, including the employer-sponsored funds.

Mr Thompson expected that some funds, mostly smaller ones, would have difficulty in passing APRAs licence test.

"However, APRA will ensure that members interests are protected with the transfer of savings to alternative better-managed funds in the event this is necessary," he said.

The process of licensing every trustee in the superannuation sector will involve a considerable effort on the part of both industry and the regulator, and will be completed over a two-year period.

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.