The Association of Superannuation Funds of Australia (ASFA) said while it was “broadly comfortable” with the new guidance, it was concerned over a requirement that ASFA had previously objected to, whereby APRA must be consulted prior to the formation of any offshoring agreements.
APRA acknowledged the concerns received during the submissions phase around prudential practice guide SPG231 - which deals with outsourcing - including that licensees may have a large turnover of such arrangements and may sometimes need to implement changes at short notices, but maintained offshoring “involves particular risks to [a registrable super entity] licensee’s business operations”.
ASFA said it felt compelled to again draw attention to the concerns, questioning the appropriateness of the provision in relation to investment management.
“It is unclear precisely what it is that APRA will be seeking to satisfy itself about, and what expertise APRA will be employing to satisfy itself that the investment management agreement is acceptable to them,” ASFA stated.
“Funds need to be able to change investment managers and move assets quickly - to take advantage of a particular investment opportunity, for example.”
Prior consultation with APRA for every instance would be “unduly onerous” for registrable super entities (RSEs) and impede them from being able to invest effectively, it added.
ASFA said it should be sufficient for APRA to review the RSE licensee’s risk management framework with respect to offshoring investments prior to their first investment offshore, but not with respect to each and every subsequent investment.
ASFA asked for greater clarity around what a licensee would need to provide and the consultation process.
ASFA also requested clarity as to what is meant by a ‘material business activity’, with member feedback indicating differing positions adopted by APRA offices and officers on whether or not a proposed outsourcing arrangement is a material business activity.
“In one example, advice from ASFA members reveals a difference in approach between the APRA’s Melbourne, Brisbane and Sydney offices as to whether the selection of a gateway service provider is considered to be the outsourcing of a material business activity,” ASFA stated.
“This in turn leads to differing approaches between trustees with respect to their dealings with potential gateway service providers, and is a source of frustration for trustees and gateways alike.”
