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APRA Member Margaret Cole - Speech to the Financial Services Council Policy Briefing

Some things change, some stay the same


Good morning and thank you for the invitation to speak to the FSC again.

Having recently passed my 12-month milestone as an APRA Member and approaching two years in Australia, I thought I would take the opportunity to share some observations about what has been a period of tremendous change, as well as a time where a significant amount has been achieved.

On my first day in the job on 1 July 2021, trustees were reporting one of the best years of investment performance for decades, with superannuation members benefiting from average returns in a balanced portfolio in the order of 17 per cent for the year. Fast forward 12 months and the story is very different, with only a handful of MySuper products finishing the year in the black.

The commencement of the Your Future Your Super (YFYS) reforms and the introduction of the annual performance test coincided with my taking on this role, and these changes have introduced a significant consequence for trustees that persistently underperform. The pleasing news is that of the 13 MySuper products that failed the test in 2021, 10 have now merged or exited the industry, to the benefit of their members. As I speak to you today, we are full steam ahead in preparations to run the MySuper performance test for the second time.

Last year we also shone a light on the performance of a sub-segment of choice products – another first for the industry – with the publication of the Choice Heatmap. We are now collecting data directly from trustees so we can further interrogate the performance in this sector in the next version of this publication, due out in December. It’s good news that bringing transparency has translated to action, with 120 of the underperforming choice options now closed or soon to be closed – demonstrating that what gets measured gets done.

The Federal Election and the resulting change of government have also been an interesting experience for me as a relative newcomer to this country. I am sure that both APRA and the new Government will continue to work to ensure members get the best from their superannuation. 

And closer to home, APRA Chair Wayne Byres announced last week he was stepping down after eight years as Chair, and almost a quarter of a century at APRA.

All of this has been happening at a time when our businesses, be they a superannuation fund, administrator, custodian, fund manager, insurer or prudential regulator, face some real challenges on the human capital front. These labour shortages, caused by ongoing waves of COVID and other sickness, are testing our resilience and driving new thinking on ways of working.

And with the wider challenges of the external environment, rising inflation, interest rates and volatile markets, not to mention probably the most important of all – climate change – the emphasis on leadership and governance needs are even more to the fore.

Yet as Chrissie Hynde reminds us in her song Hymn to Her: “some things change, some stay the same.” And for both APRA and industry, much will remain constant regardless of our external operating environment, or who is running the country – or its prudential regulator. We remain focused on the financial and operational resilience of superannuation funds. The duty of the trustees to members’ best interests is unaltered.

And what’s abundantly clear to me 12 months in is that the North Star (or maybe it’s the South Star in Australia?) for this industry and for us all will always be the superannuation member. Trustees need to ensure that the decisions they make, and their frame of reference in doing so, are viewed through the eyes of the owners of the money – the member. Some things stay the same.

Staying the course


One of the clearest signals that APRA’s focus and agenda in superannuation remain undiverted will come next week when we release our latest Corporate Plan, laying out APRA’s strategic objectives for the next four years. Let me save you any suspense: it looks very similar to our Corporate Plan last year. We said from the start that this was an ambitious multi-year plan and what I find pleasing is the progress that we have made to date in areas that deliver strong and tangible benefits to superannuation members. 

We will continue to push trustees to rectify sub-standard practices through robust supervision, strengthening prudential standards and reinforcing minimum expectations in areas including investment governance, successor fund transfers, financial resilience and ensuring trustees are undertaking expenditure in the best financial interests of their members. You can expect our push to eradicate unacceptable product performance to continue by intensifying pressure on trustees to cease offering high-fee, poor performing products, and through further scrutiny of the choice sector.

As we finalise our work on the MySuper performance test for a second year, the results raise the prospect of funds that fail for the second time having to close to new members. We have engaged closely over the past year with the trustees of those three remaining products to ensure they are prepared to comply with that requirement should it be necessary. Trustees are also required to meet their obligation to inform members of their test failure. We will be closely monitoring those products required to close to new members through a targeted data collection to ensure trustees are meeting these requirements of the law.

Inevitably there will also be products that fail the test for first time. In those cases, trustees will also need to comply with the law and notify their members of the result. While some aspects of those laws may be adjusted following the review that the Government has recently announced APRA welcomes the Government’s ongoing commitment to measuring superannuation performance and creating transparency around the results. As I said earlier, what gets measured gets done, and there is much more to be done when it comes to tackling underperformance.

In terms of the choice sector, APRA will once again publish the Choice Heatmap later this year, with one important difference: we will use data gathered through our new data collections via APRA Connect. As with the performance test, the transparency the heatmaps provide continues to act as a catalyst for trustees acting to address underperformance and improving outcomes for members as a result. In response to last year’s inaugural Choice Heatmap, trustees have indicated to APRA that approximately half of the worst performing choice options have now closed or will shortly be closed, and that action is being taken to improve the performance of the remaining underperforming options. This is very good news for members. 

I am often asked whether APRA has a figure in mind for the ideal number of superannuation funds, and when we might feel the industry has consolidated sufficiently. APRA does not have a particular number in mind, but as APRA Chair Wayne Byres remarked in an address to industry recently: “It’s fair to say, that if you were designing the superannuation industry from scratch, you wouldn’t give it the shape we have today”. With the industry still at 145 APRA-regulated funds, of which 105 collectively manage less than 9 per cent of assets, I can say that it is our view that the optimal size of the industry remains a fair distance from where we are now.

Planning ahead


While APRA’s over-arching mission remains the same, we need to be aware of, and adapt to, changes in our operating environment, and use these as an opportunity to strengthen and evolve the prudential framework and how we work with it.

On Monday we released a discussion paper for consultation seeking industry input to proposed updates to Prudential Standard SPS 515 Strategic Planning and Member Outcomes. While this standard, which aims to improve business planning and increase trustees’ focus on members, only came into effect from the start of 2020, some things have changed. Not only has there been change to legislative settings, such as the introduction of the best financial interests duty and retirement income covenant, but our own supervisory observations indicate the need for refinements and clarification. For example, we have noted weaknesses in trustees’ ability to connect their Business Performance Review findings with their actual business plans and to understand how their strategic objectives will improve outcomes for all cohorts of members. 

To address these issues, we have proposed a series of amendments to the standard, including:

  • strengthened requirements to ensure trustees deliver outcomes to all cohorts of members in a more measurable way; 
  • increased board oversight of financial projections and closer monitoring and managing of financial resources in an integrated way that better reflects their risk profile and nature of their business; and
  • ensuring timely action is taken to address areas of underperformance, including transferring members to better performing products or funds.

We are also using this opportunity to make the standard and accompanying guidance easier for trustees to understand and comply with. This is in line with our broader agenda to modernise the prudential architecture (MPA).

Stronger and simpler


Another APRA reform related to our MPA initiative is the release last week of our first prudential standard specifically addressing operational risk. This is a cross-industry standard that seeks to address: 

  • the escalating risk associated with the greater reliance of businesses (and customers) on technology and outsourcing at the same time that cyber-threats are on the rise; 
  • the increased threat of natural disasters due to climate change; and
  • the challenges associated with the pandemic, such as remote working, sick workers and labour shortages.

The proposed Prudential Standard CPS 230 Operational Risk Management (CPS 230) will replace five existing standards including the outsourcing and business continuity prudential standards for superannuation.

Operational risk is closely linked to strategic planning and member outcomes, as well as the operational risk financial requirement, which we will be consulting on later in 2022. Superannuation businesses – often with a relatively small trustee operation overseeing investments in billions of dollars worth of assets – typically have a high reliance on third parties to deliver services. Consequently operational risk is an especially important issue for this industry. Chapter four of the CPS 230 discussion paper is particularly significant as it explains the shift from “outsourcing” to overseeing provision of services that are critical to the delivery of member outcomes.

Trustees must also ensure they meet their overarching legislative obligations, including the duty to manage conflicts. This issue is especially important with respect to service provider arrangements, with a strong onus on the board to scrutinise and understand the nature of the contract and to oversee the performance of service providers to fulfil their obligations under the Superannuation Industry (Supervision) Act. This is reflected in draft CPS 230, which includes a requirement for an entity to be able to terminate an agreement in a situation where it is inconsistent with the best financial interests duty.

Completing the circle


Before wrapping up, I’d like to touch on the industry’s progress in responding to the new retirement income covenant.

It’s a little over a month since trustees were required to have published summaries of their retirement income strategies on their websites. APRA and the Australian Securities and Investments Commission (ASIC) have commenced an initial review of these strategies with a view to being in a position to share details of our analysis and observations later this year. We also intend to publish examples of better practice to assist industry to continue to evolve and strengthen its role of supporting their members in this phase of their superannuation journey.

While it is clearly “early days” in terms of the formal requirement for trustees to have documented plans, this must move swiftly to be more than just a compliance exercise. The reality is that superannuation members are retiring every day, and supporting members to ensure they are best positioned as they move beyond the accumulation phase of superannuation is an imperative. 

In saying that, solving Australia’s long-standing retirement income challenge more broadly will be a marathon, not a sprint, and will require a collaborative whole-of-industry approach to make significant progress, including the important areas of advice and product suitability. In addition to reviewing the work of trustees in relation to their strategies, I am pleased to say that APRA is part of the broader dialogue happening across the industry and looks forward to contributing in a meaningful way for the support and benefit of members in retirement.



Australians have faced many significant challenges over recent years, ranging from severe flooding to new COVID-19 variants and the economic impacts of war in Europe and ongoing Chinese sanctions. More recently we’ve seen surging inflation and sharply rising interest rates, squeezing many household budgets. Now it looks like we might need to prepare for an outbreak of monkey pox!

Throughout these challenges, Australians have been able to rely on their banks, insurers and superannuation funds to deliver the essential services they need to buy critical goods and services, recover from financial loss and live with dignity in retirement. A stable, resilient and operationally sound financial system is essential to Australians’ quality of life and preserving it lies at the heart of APRA’s mission. That’s why – true to the spirit of Chrissie – “we will always carry on” rectifying sub-standard industry practices, eradicating unacceptable product performance and accelerating beneficial industry consolidation. 

In doing so we remain focused on our North Star – improving outcomes for superannuation members. As representatives of superannuation funds, your role and place in the system is different, but the star you’re guided by should be exactly the same. Some things change, but that is not one of them.

In finishing I can’t let this moment pass without acknowledging our departing Chair Wayne Byres who has done an outstanding job leading APRA for the past eight years. I am sure many things have changed in Wayne’s era and some have stayed the same. I have benefitted not only from Wayne’s wisdom but also his kindness and care. He exemplifies APRA’s values and will be a tough act to follow. But he leaves the organisation strong and resolute in its purpose – protected today and prepared for tomorrow.

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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.