The Australian Prudential Regulation Authority (APRA) has released a discussion paper on its proposals for prudential standards for the superannuation industry.
The paper, released for consultation, outlines the range of topics to be covered in prudential standards and the key requirements APRA expects to include in each standard.
The regulator intends to introduce prudential standards covering matters common to other APRA-regulated industries 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 requirements.
"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," the regulator said in a statement.
"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."
Commenting on the proposed standards, the Australian Institute for Superannuation Trustees (AIST) chief executive Fiona Reynolds said: "While the industry will need to further consult with APRA on the finer detail of many of the new requirements, the proposals provide clarity on the missing elements of the government's Stronger Super announcement such as fund requirements on scale and operational risk reserves.
"Whilst many funds have high levels of governance, the reforms proposed in the discussion paper will leave funds in no doubt about where the bar is being set in terms of running the super funds of the future in MySuper."
APRA will also seek to change the definition of an independent director, Reynolds said.
"It is proposed that the definition will go further than SIS act by not allowing an independent director who works for a service provider or is an immediate past executive or comes from a funds sponsoring organization," she said.
"Importantly, operational risk reserves will be based on the operational exposure of each fund and it's individual risks rather than an arbitrary minimum and maximum figure.
This is something AIST argued strongly for in the consultation processes of stronger super and the Cooper review," Reynolds said.
AIST released a governance framework for not-for-profit funds earlier in the year.
"Many of the issues raised by APRA are included in our guidelines," she said.
"We have adapted the guidelines for the entire APRA regulated funds area and have provided them to the FSC [Financial Services Council], ASFA [the Association of Superannuation Funds of Australia] and APRA for input. We expect them to form the basis of the industry code of governance," Reynolds.
"AIST will be making a full submission and we expect to be actively involved in these important reforms," she said.
