The Australian Prudential Regulation Authority (APRA) said today that a safe and well-managed superannuation fund was most likely the result of trustees who work first and foremost in the interests of their members.
Speaking at the annual conference of Major Superannuation Funds in Hobart, Mr Charles Littrell, APRAs Executive General Manager - Policy, said that trustees accept a legal obligation under the Superannuation Industry (Supervision) Act to do their best to maximise fund members interests, ahead of all other interests. Enforcing this obligation is APRAs focus in superannuation.
Unfortunately, APRA sees rare cases where trustees fail that obligation, he said. This does not mean that they altogether abandon member interests but that they are subordinated to another constituency.
According to Mr Littrell, the cost in these cases is typically a lower return or possibly a higher risk than would occur if the trustees were fully focused on member interests.
Among other areas viewed by APRA as major risks to superannuation are fraud, which is very rare but potentially very damaging, and lack of objectivity, particularly in investment selection and in letting servicing contracts to related parties.
Mr Littrell said that APRA accepts that even honest and diligent trustees can sometimes take decisions that look inappropriate in hindsight.
As long as these decisions were taken in good faith and on a proper analysis, APRAs general response is to ensure that the trustees of the fund, and where relevant the industry more generally, learn from the negative outcome.
He added: When trustees consciously act other than in their members interest, however, APRA takes a much harder line including robust enforcement action.
Enforcement action can include referral to the Australian Securities and Investments Commission (ASIC) and the Director of Public Prosecutions (DPP) for consideration of civil and criminal remedies, depending on circumstances.
APRA is currently working to support the Governments announced intention to improve superannuation safety via universal superannuation trustee licensing and superannuation fund registration. This process will focus heavily on the trustees capacity and willingness to manage risk, as expressed via a Risk Management Strategy, with a linked Risk Management Plan for every fund overseen by the trustee.
APRA also intends to increase substantially its statutory statistical collections from superannuation funds as of June 2004. This will assist APRA in carrying out a more data driven and proactive approach to prudential supervision of the superannuation industry.
A copy of Mr Littrells speech is available on APRAs website (http://www.apra.gov.au/speeches/03_06.cfm)
