The Australian Prudential Regulation Authority (APRA) says that the granting of superannuation licences under the new reforms will be dependent on a trustees ability to effectively demonstrate its capabilities in managing risk on a number of levels.

The Governments announced reforms for the superannuation industry are due for implementation in early 2004.

Mr Charles Littrell, APRA Executive General Manager, said that the regulator will closely examine three key aspects of a super funds risk management plan (RMP).

APRA will be specifically focussing on investment risk, operational risk and agency risk when assessing funds under the new licensing regime, he said. 

Addressing the Committee for Economic Development of Australia (CEDA) on super reform in Sydney today, Mr Littrell said APRA wanted to see fund investment strategies based on sensible asset allocation and selection of fund managers or investments, and in line with members reasonable aspirations about long term risk and return.

We would also expect trustees to develop a decision rule for passive versus active management and sound policies for dealing with soft dollars and voting equities, he said.

APRA sees outsourcing management and trustee focus on member interests as the key issues for operational risk and for agency risk respectively.

Superannuation is particularly susceptible to agency risk due to the information mismatch between providers, their agents and fund members, and also because many super arrangements are difficult or costly to exit.

According to Mr Littrell, APRA had recently completed a first comprehensive review of the superannuation industrys investment performance. 

APRA will use this information to examine more closely fund performance for prudential warning signals.

A copy of Mr Littrells speech is available on APRAs website (http://www.apra.gov.au/speeches/)