Thank you Conexus for hosting this event, my final official engagement before I step down as Deputy Chair at APRA.

I have a good friend in the world of regulation based in the UK. We sat on the FSA Board together. He was the Bank of England’s nominee to that Board and had a long and distinguished career at the Bank. After the GFC, we split the FSA into the FCA and the PRA. I stayed a while longer before heading back to the private sector, and he became the first CEO of the PRA. But it’s less often remembered that he transferred back to be CEO of the FCA. My friend’s name is Andrew Bailey and he went on to be the Governor of the Bank of England.

I see Andrew regularly when I visit the UK. When I became Deputy Chair of APRA I joked with him: “Well Andrew isn’t it a ‘funny’ thing that I am now Deputy Chair of Australia’s Prudential Regulator.”

“Not half as funny,” he said, “as me having been CEO of the conduct regulator!”

My point is, no one could have been more surprised than me that I would pivot from “the Enforcer” in the UK at an earlier stage of my career to a prudential regulator on the other side of the world in my latest career reinvention.

I like to think this transition shows a fair degree of agility, a characteristic APRA encourages in its people. I think it also reflected a more mature stage – it’s great, very exciting being an enforcer, seeing newspaper reports every day.

I have a montage on my wall of headlines from that era given to me by my FSA colleagues as a leaving gift. (Incidentally I now have one from my APRA colleagues as well).

But it was time to work to effect change in a different way, as a system regulator exercising the subtler, or sometimes not so subtle, art of prudential persuasion.

Not so many headlines – in fact often criticism for operating in secrecy. Secrecy, I prefer the word ‘confidentiality’, preserved by S56 of the APRA Act for very good reasons. But a critical task, no less than protecting the safety and stability of the financial system.

So as a Brit, arriving in Australia (now my home) during COVID in 2020, without a background in the system in Australia, non-aligned, no politics, no connections, no mates, I found myself appointed APRA Member with primary responsibility for Super.

It didn’t take too long to realise there were some very significant undercurrents, dark waters with rips and eddies, maybe even a few sharks. In my time, I have even encountered a Swan.

No matter, I set about this role in the spirit of listening, learning and doing the right thing, “without fear or favour”, aiming to leave the super system in a better place, fitter for the future challenges, (of which many were and still are on the horizon if not at the gates) more closely attuned to the needs of the members, ready to fulfil the commitment of delivering on the promise of dignified retirement.

And so it began. The Parliament’s Your Future, Your Super legislation came into effect on my first day at APRA. APRA’s role in its delivery was mine to take forward with the appropriate spirit of endeavour.

A core theme of the legislative reforms was transparency. This transparency was pointed at driving better outcomes for members.

APRA had already started on the transparency journey – the train had pulled out of the station. The reforms powered up this process.

It is notable that when Wayne Byres left APRA he said that transparency was the most important and impactful of all changes that been forced on the superannuation industry during his time as Chair.

Wayne cited Michael Hodge KC who, as senior counsel assisting the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, had posed the question: “What happens when we leave these trustees alone in the dark with our money?”

So driving greater transparency was to be an important focus for me too. Driven by the new legislation and the public interest.

Putting the F in Bfid

Let’s start with the best financial interests duty – or BFID.

This has changed trustees’ obligations from “acting in the best interests of members” to “acting in the best financial interests of members”. One small change in wording but a giant leap forward in implications for the industry.

The explanatory memorandum that accompanied the legislation precisely, explicitly and pointedly focused on trustee expenditure, giving detailed examples of the kinds of expenditure that would or would not be expected to be in the best financial interest of members.

By the time BFID was introduced, trustee expenditure had clearly become a matter of public concern. There had been the remarks at the Royal Commission and a subsequent Productivity Commission report which called out the lack of transparency in how super trustees spent members’ money.

APRA had also identified its own concerns about fund expenditure practices through a thematic review in early 2021 predating the heightened duty and my arrival at APRA. This revealed failures by trustees to measure expenditure rigorously, or in assessing the anticipated benefits to members from sponsorships and marketing campaigns. It was clear, therefore, that those practices would be insufficient to satisfy trustees heightened obligations under the new legislation.

So once BFID became law, it was not surprising that APRA would shine a light here, intensifying our focus on fund expenditure supported by the collection and publication of detailed expenditure data.

The expansion of APRA’s superannuation data collections (the SuperData Transformation programme) captured richer, deeper information in areas including investment allocations, insurance in super, and fund expenditure at both an industry aggregate and individual fund level. And the subsequent publication of that data would prove informative.

We set about prompting trustees to improve both policies and procedures in practice. We conducted further thematic work, had dialogues and held round tables, gave speeches.  There was very significant engagement.

This Government’s statement of expectations from 2023 and APRA’s statement of intent included commitments as to transparency on expenditure and reducing the level of exposure of superannuation members to funds with substandard practices including in relation to expenditure.

It was also a focus of parliamentarians including the former Assistant Treasurer, and of parliamentary committees.

It was set out in our Corporate Plan – putting a focus of attention on fund expenditure where member benefit is not immediately evident or may not reasonably be justified.

This work is and has always been agnostic as to business model.

But it would be fair to say that despite this history, APRA’s push into fund expenditure has been controversial in some quarters, some minimising its importance, others trivialising it by suggesting APRA is delving into the cost of a cup of coffee (we do not) and even accusations that APRA was deliberately targeting specific segments of the industry (we were not). But like it or not, APRA’s focus on trustee spending has changed behaviours.

I am absolutely sure (in a quiet prudential regulator sort of way) that trustees now give much greater consideration to the benefits to members before spending members’ money. After all, when you are responsible for other people’s money, you must be very careful what you spend it on. I’d consider this basic hygiene for super trustees. It’s also a requirement of the SIS Act and of Trust Law.

Transparency in super is an important hard-won change that has benefitted millions of Australians. APRA is committed to enhancing transparency through the delivery of the performance test, our data and statistical publications, and the future publication of data from the Government’s Retirement Reporting Framework.

The Annual Superannuation Performance Test

Now let’s reflect on the second reform, the introduction of the annual performance test. This has enabled APRA to shine a bright light on product performance, fees and costs, while also carrying consequences for products failing the test.

In its first year, 13 of the 76 MySuper products assessed failed the test. Trustees were required to notify members directly.  Since then, the number of failing products has declined and the number of members in products that failed the test has fallen from one million to 8,500.

The performance test has its detractors, but it has worked to achieve the objective for which it was designed - to enable transparency around performance outcomes and to facilitate change so that members do not get stuck in underperforming funds.

The test is a world and market leader. Others, for example the UK, are keen to watch and learn from us. Other countries would like to introduce a test, acknowledging that it’s a difficult and complex thing, and marvel at Australia’s foresight in doing so.

What shape the test takes in the future is a matter for government. The treasury’s consultation on potential changes to the test completed last week. We understand many different perspectives have been put forward. We must now wait and see what the government decides to do. It has committed to keeping some form of the test and to focussing on unintended consequences and improvements.

Accountability

Turning now to governance and accountability.

Strong governance and accountability are central to the trustee’s role.  APRA seeks to strengthen the requirements of our standard on governance, not just in super but in banking and insurance too. The implementation of the Financial Accountability Regime for super last year, has increased trustee accountability as well.

At an aggregate level, the industry largely meets its obligations as custodians of $4.4 trillion in members’ retirement savings. But when you start drilling down to the individual fund level gaps remain.

There have been many thematic reviews during my time at APRA. Whether we’re looking into cyber security resilience, investment governance valuation practices, liquidity risk management or platform product onboarding, operational risk management, or the work we’ve done with ASIC on trustees’ implementation of the requirements under the Retirement Income Covenant, we continue to identify examples of trustees who are falling short of expectations.

That is rather concerning to say the least when you consider what is at stake. Clearly, APRA’s work is not done.

Good governance is a bedrock of the system. Our proposals which we have consulted on extensively (more roundtables and meetings than ever before) reflect what we believe are sensible, measured reforms. It’s interesting to see the controversy they still attract.

Close

There are many, many topics I could continue to talk about in these remarks.

But now, as Frank (Sinatra) sang, the end is near. Five years is actually a short period in the life of a prudential regulator especially one with a change agenda. Not long enough to see the fruits of one’s endeavours play to conclusion. Never join a prudential regulator if you’re an impatient soul – which actually I am.

I leave things I started not finished. I aimed to be bold and resolute in pursuing APRA’s mission in super. I have, I hope, done justice to my task – but others will judge.

Words come to mind, stewards, guardians, protectors of the system. We all have a role to play. Let’s also be drivers of a stronger system and of better outcomes for real people, whose lives will be enormously enhanced by the best possible operation of this amazing asset to the system. Keeping it neutral, transparent and strong. Values worth fighting for.