Mackay Chapman October 2023 APRA Update

In this month’s APRA update:

• APRA has extended an invitation to superannuation trustees to provide feedback on its proposal to publish comprehensive data on super fund expenditure; 
• Consultation has commenced regarding proposed revisions to the Economic and Financial Statistics (EFS) reporting standards and guidance; 
• APRA is taking steps to enhance the effectiveness of Additional Tier 1 (AT1) capital instruments for potential bank stress scenarios; and 
• APRA is planning to update Prudential Standard SPS 515 Strategic Planning and Member Outcomes (SPS 515) in an effort to improve the outcomes for superannuation members. 

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‍APRA consults on increased transparency of super fund expenditure

APRA has extended an invitation to superannuation trustees to provide feedback on its proposal to publish comprehensive data that will offer deeper insights into how members' superannuation money is spent and invested. This move is part of APRA's ongoing Superannuation Data Transformation project, which aims to improve the quality and scope of data collection.

The proposed data will encompass total fund expenditure and expanded asset allocation data, and the plan is to make most of this new superannuation data publicly accessible. Some of the key elements of the proposal include the publication of total expenses for the industry categorised by internal, related outsourced, and non-related outsourced expenses for administration, operating, and investment purposes. 

This will also extend to individual fund levels, encompassing expenses like marketing, sponsorships, industrial bodies, related party costs, director and executive remuneration, and political donations, all categorised by the payee or service provider.

In addition to the expenditure data, APRA is considering the publication of aggregated asset allocation data for various investment types. This would cover fund investments in property and infrastructure, alternative strategy funds, listed equity, and private equity. APRA will also explore the possibility of publishing data at the individual fund level, contingent on trustee feedback.

The consultation period will include two roundtable discussions involving trustees and other industry stakeholders, with the deadline for feedback set for November 29, 2023. APRA plans to work closely with stakeholders to evaluate the data to be published as it seeks to promote transparency and improve member experiences within the superannuation industry.

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‍APRA consults on updates to modernised Economic and Financial Statistics reporting standards and guidance

APRA has initiated a consultation regarding proposed revisions to the Economic and Financial Statistics (EFS) reporting standards and guidance. These proposed changes have been developed in collaboration with the Australian Bureau of Statistics (ABS) and the Reserve Bank of Australia (RBA). 

The aim is to rectify inconsistencies found in the Reporting Practice Guide RPG 701.0 ABS/RBA Reporting Concepts for the EFS Collection and Reporting Standard ARS 701.0 - ABS/RBA Definitions for the EFS Collection. These changes will ensure alignment with the updated capital framework released in 2021. Additionally, APRA, ABS, and RBA are also inviting input on amendments to the EFS Priority Listing for Data Items.

Interested parties have until November 6, 2023, to submit their feedback. Further information and relevant documents can be accessed on the APRA website.

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‍APRA seeks feedback on improving effectiveness of hybrid capital bonds

APRA is taking steps to enhance the effectiveness of Additional Tier 1 (AT1) capital instruments for potential bank stress scenarios. 

AT1 capital instruments, often referred to as "hybrid" bonds, play a critical role in shoring up a bank's resilience and safeguarding depositors. These instruments are designed to absorb losses during severe stress periods or aid in an orderly resolution in the rare event of a bank's failure. However, APRA is concerned that certain design features and market practices could impede AT1 capital instruments from functioning as intended.

The discussion paper released by APRA outlines the challenges of using AT1 capital instruments in the Australian context and seeks input on potential options to address these challenges. In addition to written submissions, APRA plans to engage with the industry to discuss these options. Following the feedback and discussions, APRA intends to conduct formal consultations regarding any proposed changes to prudential standards or guidance in the coming year. 

You can find the discussion paper on APRA's website under "Improving the effectiveness of Additional Tier 1 capital instruments."

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‍APRA strengthens standard to enhance member outcomes in superannuation

APRA is planning to update Prudential Standard SPS 515 Strategic Planning and Member Outcomes (SPS 515) in an effort to improve the outcomes for superannuation members. This update is driven by changes in the superannuation operating environment since the standard's inception in 2020, including industry consolidation and legislative adjustments.

The proposed reforms to SPS 515 are designed to achieve the following objectives:

• Align expenditure requirements with the best financial interest duty and support the retirement income covenant, ensuring trustees can justify business operation-related expenses.
• Enhance trustees' management of financial resources by promoting a prudent approach to areas like fee setting and managing member-funded reserves.
• Improve the management of risks associated with member transfers between funds.

Furthermore, APRA has decided to retire its guidance circular on the sole purpose test after reviewing SPS 515 and associated guidance. No new guidance is planned.

Deputy Chair Margaret Cole emphasised the significance of updating SPS 515 in terms of ensuring trustees have robust business operations and are accountable for delivering outcomes in the best financial interests of members.

A discussion paper titled "Strategic and transfer planning: enhancing member outcomes" is available on the APRA website for further information.

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The contents of this article do not constitute legal advice and it is not intended to be a substitute for legal advice and should not be relied upon as such.  It is designed and intended as general information in summary form, current at the time of publication, for general informational purposes only.  You should seek legal advice or other professional advice in relation to any particular legal matters you or your organisation may have.