APRA welcomes the release of FRAA report

The Australian Prudential Regulation Authority (APRA) welcomes the release of the Financial Regulator Assessment Authority (FRAA) review report, which focused on the effectiveness and capability of APRA’s supervision and resolution work in superannuation. 

The Review recognised APRA’s key role in maintaining financial safety and system stability for the benefit of the community and its important contribution to Australia’s world-leading financial system. It also recognised that APRA has successfully regulated the banking, insurance and superannuation industries in response to complex challenges and crises and is well regarded by stakeholders. 

In relation to superannuation, the Review found the supervision function is effective and capable, while its resolution function is less developed, which accords with APRA’s self-assessment.  

The Review has made five recommendations aimed at strengthening risk identification in the superannuation industry, continued development of capabilities and expertise of APRA’s people, investment in data and technology, enhancing transparency to maximise the impact of APRA’s outcomes, and lifting recovery planning and resolution readiness. 

APRA supports the recommendations made by the Review, which aim to build on APRA’s progress in improving superannuation trustees’ delivery of beneficial outcomes for superannuation members. 

APRA will act on these recommendations, including through initiatives already underway. The recommendations will also be reflected in APRA’s Corporate Plan, which will be released next month.  

APRA Chair John Lonsdale said: “APRA welcomes the FRAA’s review of APRA’s superannuation capabilities. The recommendations provide helpful guidance and reinforcement for a more effective APRA into the future. 

“APRA will continue to build on its strong foundation of safeguarding the financial wellbeing of the Australian community by further strengthening prudential frameworks and improving capability to drive better industry practices in superannuation for the benefit of members,” Mr Lonsdale said.  

Mr Lonsdale thanked the FRAA Panel and Secretariat for their insights and all stakeholders who contributed to the Review.

The FRAA report is available at: Publications | Financial Regulator Assessment Authority (fraa.gov.au).

APRA's detailed response to the report can be found on the attachment below.

 
Attachment: APRA’s Response to the FRAA Recommendations 

APRA should increase its efforts to identify risks in superannuation, including emerging and systemic risks, and their potential consequences. APRA could then better perform its supervisory activities and recovery and resolution planning.  

APRA’s response 

APRA is committed to strengthening its capability further to identify emerging and systemic risks in superannuation, including to inform its recovery and resolution planning. This includes a focus on risks that have particular application within superannuation – such as valuation of unlisted and illiquid asset classes; movement of members to the retirement phase; and evolving investment strategies and product complexity. And more broadly, those risks relevant on a cross-industry basis including market downturn scenarios; availability of service providers; and cyber-risks.

APRA’s heightened focus will drive an uplift in superannuation industry risk management and strategic planning practices.

APRA should prioritise and invest in initiatives to recruit, train, retain and develop its staff to build appropriate skills and industry knowledge, to drive deeper understanding and build stronger capability to manage and respond to emerging and systemic risks.

APRA’s response 

APRA will continue to enhance the capability of its people including for superannuation supervision and resolution functions. 

APRA is strengthening workforce planning, with an emphasis on identifying the skills, capability and experience required to deliver on APRA’s Corporate Plan, and effectively respond to emerging and systemic risks. 

APRA will also complete the in-train review and uplift of its supervisory training program, leveraging specialists to build supervisory capabilities.

APRA should continue to invest in its data and technology capabilities and processes to provide timely insights, allow effective internal collaboration, and to the extent appropriate, minimise regulatory burden associated with data and information requests.  

APRA’s response 

Consistent with APRA’s Corporate Plan, APRA is transforming its technology and use of data to sharpen risk-based supervision and enhance transparency and accountability. 

APRA’s new Technology and Data Division will support execution of this priority by better aligning leadership, accountability and resourcing data and technology capability. 

APRA will continue to invest in comprehensive data and technology capability to enable greater data-driven decision-making, including the delivery of the Superannuation Data Transformation program. 

APRA reiterates its commitment to addressing undue regulatory burden, including through collaboration with peer regulators.

APRA should provide trustees with annual plans of proposed supervisory activity. APRA should keep trustees informed of the status of reviews, information requests and other supervisory activities.    

In relation to thematic reviews, APRA should consider publishing its methodologies and more detailed insights generally to build public awareness and enable interested parties to comment.    

APRA should consider communicating more timely and detailed insights across industry to increase awareness of risks and promote better practices.  

APRA’s response 

APRA is committed to providing greater visibility to entities regarding supervision plans and also sharing insights and best practices with industry. 

Building upon steps taken by APRA in recent years, APRA’s 2023-24 Corporate Plan will provide enhanced visibility regarding APRA’s strategic priorities and key supervisory and policy activities. APRA will also review and increase the visibility provided to entities on planned and ongoing supervisory activity and thematic insights. 

APRA will also maintain momentum to improve outcomes for superannuation members by publishing performance data on superannuation products, and supervising against the results. 

APRA should prioritise developing its resolution capability and work closely with industry to lift awareness of recovery and resolution planning requirements, to ensure APRA is able to support recovery and exit, and resolve failing superannuation trustees. Doing so will also serve to enhance its supervisory function.  

APRA’s response 

Building on APRA’s release in May 2023 of final prudential standards and prudential practice guides on recovery and resolution planning, APRA will:

• communicate better practices to industry following pilot reviews of selected superannuation trustee recovery and exit plans;
   
• progress superannuation pilot resolution planning, including to enhance APRA's resolution capability in superannuation; and 
   
• engage with Treasury and provide advice to Government on options to enhance APRA’s statutory crisis response toolkit in superannuation.

APRA will drive a step-change in superannuation industry recovery and resolution planning, consistent with APRA’s new prudential standards.