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APRA Executive Board Member, Margaret Cole - Speech to the Women in Banking and Finance webinar

Honour the past, stride boldly into the future


Good afternoon everyone,

As a fellow woman in banking and finance, it’s a pleasure to be with you. I am sorry the COVID-19 health restrictions mean I can’t join you in person today. Having arrived less than a year ago from the UK, this sadly sums up much of my Australian experience to date. Let me say though, I do love what I have seen of your country so far.

My primary role at APRA is overseeing our work on superannuation. Being asked to oversee a system of such scale and economic significance is certainly a privilege. It’s also a challenge, but I am encouraged by the fact that I’m not starting from scratch. I come to APRA with experiences and perspectives from a career lasting more than 30 years across various industries in both the private and public sectors. To use an equestrian metaphor – which is apt given that I’m a keen horse rider – this is not my first rodeo. I’ve also been blessed to find myself in an organisation that has already spent many years building up the resilience and capabilities of the superannuation industry so that it delivers better outcomes for its members. 

Yet I’m reminded of the management self-help book “What got you here won’t get you there”. Its key message is that the tools and skills needed for the next stage of the journey will be different from the ones used in the past. So it is for regulators and superannuation businesses alike.

Despite overseeing significant improvements in superannuation standards and enhanced member outcomes, my new APRA colleagues are the first to admit that there is more to do. There are still too many funds overall, and still too many persistent underperformers. Fees for many products remain too high, especially in the choice sector, and millions of dollars of members’ money is directed toward expenditure that has questionable benefits for them. 

From my time as a financial regulator in the UK, I know that regulators can only be as effective as the powers they’re equipped with and their appetite to use them. It’s a welcome coincidence that on the day I started at APRA – 1 July this year – a new package of superannuation reforms, known as Your Future, Your Super (YFYS), came into force. These Government reforms enable APRA to impose the most significant consequences yet for underperformance in superannuation and to hold trustees to account where they fail to put their members’ best financial interests first.  As well as addressing persistent underperformance, the new laws have the potential to bring about major changes in the composition of the super industry – provided they are implemented and rigorously enforced. 

The reforms don’t require a fundamental overhaul of our approach – they both complement and support our existing superannuation industry strategy – but we nevertheless need to evolve and adapt if we are to fulfil the new expectations on us. Our challenge is to build on the work of the past, while recognising the need to harness new ideas and perspectives to drive APRA and the superannuation industry forward on the next stage of the journey.

From England with law


So how does a girl from Preston in England’s north west, famed for its history of textile factories and the model for Coketown in Charles Dickens’ novel “Hard Times”, end up in cosmopolitan Melbourne at APRA, with primary responsibility for an industry managing assets worth more than Australia’s GDP?

As a child, I was fortunate to have a mother who made me believe I could be anything I wanted with enough hard-work and determination. One of her favourite TV shows in the 70s was a drama called Justice, which was actually set in the north of England. The main character was a female barrister – Harriet Peterson – and my mum was quite taken by the gown and wig she wore. So when seeing a local solicitor to make her will, my mother asked him to take me on as what these days we’d call a summer clerk. I went on to study law at Cambridge University, before joining and becoming a partner in two very different styles of legal practices in London. 

The most formative case of my early career involved the British newspaper magnate Robert Maxwell (whose daughter Ghislaine has become somewhat infamous for reasons we don’t need to get into here). It turned out that Maxwell had robbed his company’s pension funds, and I was engaged to get the pension fund monies back from banks and other enterprises. I spent the next five years in court proceedings, bankruptcy hearings, appearing before the British Parliament’s Social Services committee and making radio and TV appearances – all   aimed at maximising the pressure to recover the pension assets. It was work to help real people, and gave me a sense of purpose that had been lacking in my commercial disputes work. It made me realise that being a pension fund trustee is not a hobby. It’s a massive responsibility with the scope to contribute huge benefit to members, but conversely with the potential to cause, or fail to prevent, huge harm in people’s lives. I saw the anxiety and distress of those who’d lost their life savings first hand. I am pleased to say we achieved a global settlement with several city banks and firms to make the pension funds whole, and I also caught the public service bug that very much influenced my future career.

When I was offered the opportunity some years later to become a financial regulator by joining the UK’s Financial Services Authority (FSA) I jumped at the chance to do something useful. As the FSA’s Director of Enforcement, my senior team and I refocused the Division’s mission statement and operating model so that we took more enforcement cases, with a particular focus in market abuse and insider trading. We stepped boldly into the arena of criminal prosecutions for insider dealing – a notoriously risky area – and had notable success. 

Just as the actor who plays Dr Who or James Bond tends to get typecast, as a woman with a noticeable high-profile public role, the media loved to categorise me as “The Enforcer”. References to guns and high heels in newspaper articles about me became popular. But in fact, I moved on to hold several different roles at the FSA at a time when it was both a prudential regulator – like APRA – and a conduct regulator like the Australian Securities and Investments Commission.

As a prudential regulator, APRA is primarily focused on preventing problems occurring, rather than prosecuting offenders after the fact, and I’m respectful of that emphasis. Having said that, I bring a strong conviction that enforcement is a vital tool for regulators to use, both to hold people and companies accountable, and to warn others. In part, that stems from my experience in the private sector: while I understand the challenges businesses often face complying with regulations, I’m also well-acquainted with what they will try to get away with! With that in mind, I believe we have capacity to further strengthen our enforcement appetite, using the full suite of tools available to us.

I also note that there is now a female Dr Who, although I suspect it will be a while before there is a female 007!

Building on solid foundations


One of my early observations of Australia’s superannuation system is the extent to which women hold so many of the key roles overseeing the industry: from Superannuation Minister Jane Hume, to ASIC Commissioner Danielle Press, and my own APRA colleague and predecessor in this role, Helen Rowell. However, despite great progress on this front, Australian women retire with less superannuation than their male counterparts given we are more likely to earn less, and more likely to work part-time or take time out of the workforce to care for families, resulting in lower contributions to superannuation over our lifetime. The situation is much the same in the UK.

Developing policies to address issues like this is the role of Government. Where regulators such as APRA play an important role is ensuring superannuation trustees are striving to deliver the best outcomes for all members, and that Australians’ retirement savings are protected and optimised.

Our approach to this can be summarised through two key documents: our Corporate Plan and our superannuation industry strategy. 

Our updated Corporate Plan for 2021-25 was released yesterday. Its theme is “protected today, prepared for tomorrow”. It outlines our vision and strategy for protecting bank deposit-holders, insurance policyholders and superannuation members during the current period of uncertainty, while also ensuring these industries are prepared for future challenges. I think it’s a perfect statement of intent for our role in superannuation. 

The superannuation industry strategy goes into more detail on the specifics of our plan to focus on retirement outcomes for superannuation members by tackling those deficiencies in the system that are not serving Australians well. The strategy is well-aligned to the new Your Future, Your Super laws, which reinforce and complement the work we have been undertaking over several years to put outcomes for members front and centre of every superannuation trustee’s strategy and business planning. That doesn’t mean nothing needs to change. To the contrary, the new laws are likely to be a catalyst for major changes to the structure and composition of the industry by equipping us with a greater ability to impose consequences on trustees that underperform or fail to put their members’ interests first.

Without going into too much detail, it’s worth me saying some more about the pillars of our superannuation strategy, their purpose, components and how they will be implemented and enforced.

Rectifying sub-standard industry practices


The first pillar is to “rectify sub-standard industry practices”. The trustees of APRA-regulated superannuation funds preside over significant financial institutions with assets of more than $2.26 trillion. Commensurate with that, there is a high expectation associated with the privilege of doing so. Our focus here is to both reinforce and lift standards of governance in areas such as board oversight, conflicts of interest and internal systems of control, along with accelerating beneficial industry consolidation for those trustees that are no longer able to deliver sound member outcomes sustainably.

This is not new work for APRA: we’ve been working to lift standards of governance and risk management in superannuation since we could first start enforcing prudential standards for the industry in 2013; the process of ratcheting up our expectations over the period since then has been a major factor in the number of funds falling from 299 in 2014 to the 170 we see today. But there is more to do.

In the coming period, we will release findings from recent thematic reviews on expenditure, the valuation of unlisted assets and benchmarking of business planning. The work on expenditure will be particularly important for trustees given the introduction of the new best financial interests duty in the recent reforms. Trustees must now ensure that they are acting in members’ best financial interests, rather than just their best interests. This is backed, powerfully, by a reverse burden of proof. How in practice will this apply? I only have time for one example today. While the changes don’t explicitly outlaw expenditure on marketing activities such as advertising campaigns or sponsoring sports teams, they will force trustees to think much more carefully about whether such expenses are in members’ best financial interests, and demonstrably so. And given what’s at stake for members over the accumulation phase of their working life, that is how it should be. 

We also expect the Your Future Your Super laws to have a positive impact on encouraging further industry consolidation through both the performance test and stapling mechanisms. Under the new annual performance test, any APRA-regulated super product that falls more than half a percentage point below a net return benchmark is considered to have failed, and the trustees must inform members. Should they fail a second successive year, the product will be prohibited from accepting new members.

In four days’ time – August 31st – we will release the first performance test results covering all MySuper products1. Many super members will learn for the first time, and in crystal clear language, that their retirement savings are in a product that has failed the test. Given that Australians are traditionally disengaged from their super, we don’t yet know what impact this heightened transparency will have, but it’s reasonable to think many members will head to the ATO’s YourSuper comparison tool seeking somewhere else to invest their money.  In doing so, members’ behaviour could drive further helpful consolidation and change.

The introduction of stapling, where a member’s superannuation fund will now automatically follow them throughout their career unless they actively choose to change funds, could have a similarly profound impact on consolidation. Under the new law, superannuation funds that traditionally attract workers in their first jobs are likely to be advantaged compared to funds that cover jobs people more typically take on in later life. Not only will it be harder for this second group to attract the new members needed to gain scale, they may miss out on investment and administration fees they might once have expected. In this new paradigm, trustees will need to review business models to assess whether approaches that may have served them well for many years remain fit-for-purpose. Many are already doing so, hence a recent spike in superannuation merger activity that is likely to continue.

Eradicating unacceptable product performance


The strategy’s second pillar is to eradicate unacceptable product performance by removing high fee, poor performance products, and stepping up scrutiny of choice products.

APRA’s MySuper Product Heatmap has already played an important role in providing transparency of product performance across the industry. In the 12 months between publishing the first Heatmap in 2019 and the second version last year, aggregate fees and costs fell across the MySuper sector by more than $400 million. The MySuper performance test is likely to accelerate the trend, as one way an underperforming product can immediately improve its assessment against the benchmark is to lower fees. This doesn’t, however, immediately help Australians who have invested roughly 46 per cent ($859 billion) of total superannuation benefits in APRA-regulated choice products.

Historically, the biggest barrier to APRA providing greater scrutiny of choice products has been lack of data on a sector that is far more complex than MySuper. This has to change, and APRA has an enormous amount of work underway to address this through the Superannuation Data Transformation project. This will enhance the breadth, depth and consistency of our super data collection, with a particular focus on filling gaps in choice data collection. These improved insights will be used to put greater pressure on choice products, including on fees, which are typically higher than for comparable MySuper products.

The Superannuation Data Transformation is a multi-year piece of work, but we’re not prepared to wait any longer to increase scrutiny and transparency on the choice sector. Next month, we will release an information paper outlining plans for our first Choice Product Heatmap, which will be published in November. Like its MySuper sibling, the choice heatmap will shine a bright light on the outcomes these products are delivering in the areas of investment performance, fees and costs, and sustainability. In particular, it will give everyone some early insights into which trustee-directed products are in danger of failing the performance test, when it is expanded to those products next year.

Modernising and innovating


The remaining pillars of the strategy are modernising our regulatory approach, with an elevated focus on retirement income solutions; and developing innovative regulatory tools, with a particular emphasis on using data to gain deeper insights and increase transparency.

The first of these is aimed at aligning what we do with the finalisation of the Government’s Retirement Income Covenant. Although the Australian superannuation system is often, and rightly, hailed as one of the best in the world, my observation is that the retirement phase (as opposed to the accumulation phase) is under-developed compared to other jurisdictions. 

This is not surprising given that Australia has focused on defined contribution retirement savings rather than the defined benefit plans that dominate retirement savings systems in other countries. Australia’s system is also not yet fully mature as it hasn’t yet been in place for 40 years. We believe there is substantial room for improvement in how the superannuation system delivers adequate incomes in retirement and that retirees can be better supported to effectively manage their super when they finish their working life. So now is the time for all parties involved in the superannuation system – policy makers, regulators, super fund trustees – to tackle this important topic to ensure that members are well-served by their superannuation funds when they reach the retirement stage. 

Taking a step outside


With Melbourne under lockdown again, most of my professional life at the moment is spent working from my office at home. Sitting above my desk – somewhat ironically under the circumstances – is a quote from one of my favourite novelists, John Le Carre, which says: “A desk is a dangerous place from which to view the world”. It’s not there to prompt me to take 10,000 steps each day, but as a reminder to divert my gaze from the screen, talk to people, ask questions, listen to their answers, and remember that the decisions we make about superannuation have major impacts on real people and their financial futures.

I may be something of an outsider when it comes to overseeing Australia’s superannuation system, but my appointment comes at a time when big changes in the industry landscape are underway. The commencement of the Your Future, Your Super laws presents a tremendous opportunity to further improve a system that only became compulsory in 1992, and has since grown to hold immense size, influence and responsibility. 

Confronting a new challenge in an unfamiliar environment can be uncomfortable, as I can attest from recent experience! But it’s also the only way we can grow and develop, which is something both APRA and the super industry must continue to do if we are to fulfil our obligations to members.  I may have taken an unusual route to get here, but that’s the objective I am working to and I am privileged to be at APRA as we embark on the next stage of Australia’s superannuation journey.


1 Trustee-directed products, also known as choice products, will be included in the test from next year.

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The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, mutuals, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding around $9 trillion in assets for Australian depositors, policyholders and superannuation fund members.