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APRA Member Margaret Cole – Remarks to the Fund Executives Association Limited Members' Discussion Forum

Wednesday 24 November 2021

Good afternoon,

In one of my former lives as a financial regulator in the UK, I was caricatured in The Times newspaper as the Financial Services Authority’s Mikado. Fans of Gilbert and Sullivan Operetta will recognise the words “I’ve got a little list”. In my new role, the issues of the day in superannuation form a rather long list; including, in no particular order:

  • New laws and regulation;
  • Performance and performance tests;
  • MySuper and Choice;
  • Governance;
  • The best financial interests duty;
  • Member outcomes;
  • Industry structure – mergers and consolidation; and
  • The Retirement Income Covenant.

I could go on. It’s a busy time in the superannuation ecosystem. I have to be brief – so I want to highlight three areas:

  • Performance
  • Governance
  • Member engagement

1. Performance


As you know, 13 products failed the first MySuper performance test. Others came close to failing.

Our messages are clear – we want to see persistent underperformance eradicated.

We have no tolerance for members remaining in underperforming products – particularly products closed to new members as a result of failing the performance test a second time. To trustees: action is required – step up or step out.

Some trustees are responding appropriately by driving forward with mergers and successor fund transfers (SFTs). This is to be welcomed. By seeking viable mergers, trustees are looking out for their members’ best financial interests, prioritising future sustainability and putting any personal interests aside.

Other trustees, aided by APRA’s intensified supervision, are working to rectify performance issues. Realistically the strongest lever to pull is reducing fees.

APRA is preparing to publish our third MySuper Product Heatmap and our first Choice Product Heatmap, and an insights paper for each. It’s safe to say the first choice heatmap will demonstrate to trustees that there is more work to be done in managing members’ money and focusing on outcomes for members – which is, after all, what super fund trustees were put on this earth to do.

On the subject of consolidation, we have seen an increasing number of mergers or SFTs in the last 12 months – the largest number for some time.

My view is that an industry with a smaller number of funds can still have vibrant competition, and is likely to serve members with better outcomes across both the accumulation and retirement phases. 

Many of the funds in the super ecosystem today lack scale. In a recent speech I gave some noteworthy statistics: 116 or about 80 per cent of APRA-regulated entities collectively manage a disproportionately small percentage (8 per cent) of the total assets. At the other extreme, 13 funds with assets of greater than $50 billion collectively manage around 70 per cent of assets. If there were effective rivalry and true competition in this market, many small and/or underperforming trustees would have disappeared off the list by now. That’s not a problem – it’s the members you are here to serve and that regulators are here to protect, rather than the trustees. In the Mikado’s words – some of these never will be missed.

You will have seen APRA in the press last week taking actions on a number of entities. Having had an interesting range of career experiences, I am not really a believer in coincidences any more. And you will know by now that my former career journey as a regulator started with enforcement. 

The APRA super team will be very focused on holding trustees to account when it comes to determining outcomes to members. We intend to be bold, pushing into the issues, asking the hard questions and taking action where needed, and showing we will use our full range of tools to get our messages across more widely.

2. Governance


On governance: I have been at APRA for five months – long enough to have seen some interesting things and to know that I will have a keen interest in this subject. Many things that need improvement start with the quality of boards and good governance. Good governance is not about process or meeting a formula. At its core is a strong sense of the purpose of the organisation, and the skills and commitment to drive to that end. It’s a difficult job – not a sinecure or something to put on a CV. I know I am speaking today with a group of executives. While your role is to devise and execute strategy and business plans, the non-executives are there to agree the strategy and hold you to the execution of it.

I have been on boards in both executive and non-executive roles. A personal view: it’s easier to demonstrate your skill as an executive. You have the people and your hands on the levers. Being a good non-exec is harder. If you do your job well, you may even annoy the executives. 

Mostly in the past, non-execs toiled unseen. But the role is vital and in today’s world – including in the super ecosystem – you won’t remain unseen. We have a strong spotlight on governance. It’s key to our aim of rectifying sub-standard industry practices. The scale and scope of this industry demands the focus and skills coverage that significant financial institutions must have and that their primary stakeholders – in this case members – deserve. It’s a privilege, not a right, to manage members’ money, so boards need to maintain scrutiny on how the executives are running the business. Such things as execution of the strategic plan, the quality of data captured and reported, the use of members’ money on expenditure that in today’s world will be far more difficult to justify as being in members’ best financial interests, operational risks on outsourced and insourced activities, the search for talent. Another quite long list. 

And here are a few more things to consider. Does your board have the right mix of skills and capabilities? Is board membership refreshed to ensure a range of diverse perspectives and avoid the danger of group-think? Do you have fit-for-purpose rules to support good governance for today’s environment, on tenure, for example, or the process for appointments? Good practice, in my view, would be to mirror ASX principles on tenure. How can your entities be at the forefront of good practice – not waiting to be cajoled by regulators? The more industry does for itself to resolve issues that are no longer a good look, the less lawmakers and regulators will need to intervene. 

3. Member Engagement


Lastly on member engagement, the information we have obtained from the 13 “fails” is showing some member outflows – more than the same period last year – but not as many members taking charge of their own super as we would like to see. This prompted me to take up the pen and write an op ed which appeared last week in The Age and Sydney Morning Herald. You, I am sure, all pay keen attention to member engagement when it comes to signing up new members. There’s quite a lot of brand promotion out there and you must all be thinking carefully about how you will be able to justify this as being in members’ best financial interests. 

I would like to see more done to make sure that members get the benefit of clear, concise information in plain English. The recent readability scorecard report was not encouraging although there were some bright sparks – hopefully green shoots. 

What about grasping this issue: could there be a cross-entity taskforce on how to provide generic information to improve member engagement and understanding, in the interests of the system as a whole?  Information that is clear, independent of any political nuance, and aimed at capturing members’ attention, helping them understand how important this issue is for their and their families’ financial futures. 

But in case I need to reinforce my earlier message, being disengaged doesn’t mean a member should be disadvantaged. You need to constantly ask yourselves the question who are you here to serve and how are you prioritising the interests of your members. As regulators, we also have to ask a similar question, and the answer is we are here to serve the interests of members, not of industry participants.

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The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding $7.9 trillion in assets for Australian depositors, policyholders and superannuation fund members.