APRA releases discussion paper on prudential standards for superannuation

The Australian Prudential Regulation Authority (APRA) has released for consultation a discussion paper introducing its proposals for prudential standards for the superannuation industry. This paper outlines the range of topics to be covered in prudential standards and the key requirements APRA expects to include in each standard.

The Assistant Treasurer and Minister for Financial Services and Superannuation announced on 21 September 2011 that the Government will release draft legislation to enable APRA to make prudential standards.

APRA intends to introduce prudential standards covering matters common to other APRA-regulated industries — on Governance, Fit and Proper, Risk Management, Business Continuity Management, Outsourcing, and Audit and Related Matters — as well as the superannuation-specific matters of Conflicts of Interest, Investment Governance, Insurance in Superannuation, Defined Benefit Funding and Solvency, and Operational Risk Financial Requirement.

Prudential standards are more flexible than legislation and can be kept up-to-date with developments in the industry and financial markets. APRA recognises that the nature, size and complexity of entities vary across any industry and, as such, requirements in prudential standards allow for appropriate flexibility and avoid a ‘one-size-fits all’ approach. APRA aims to achieve sound prudential outcomes without prescribing the precise manner in which those outcomes should be achieved. This approach results in prudential requirements that are more likely to effectively address the risks faced by institutions and also avoid unnecessary compliance costs.

APRA Deputy Chairman Ross Jones said the proposed prudential standards will significantly strengthen the superannuation system.

‘APRA has successfully established prudential standards in banking and insurance for many years, and the establishment of such standards in superannuation will provide clear benefits to the superannuation industry as a whole and to its members.’

Mr Jones added: ‘The establishment of prudential standards in superannuation will not change the fact that the primary responsibility for prudent management of superannuation funds rests with trustees.’

Submissions on the proposals in the discussion paper are due by 23 December 2011 and should be sent to superannuation.policy@apra.gov.au. The discussion paper, Prudential standards for superannuation, can be found on APRA's website.