Superannuation funds' conflicts of interest, remuneration disclosure and investment governance will be high on the prudential regulator's radar in 2016, warns Corrs Chambers Westgarth.
In its 2015 annual report, APRA has warned it will be watching superannuation funds closely when it comes to conflicts of interest, insurance in super, investment governance, liquidity management, remuneration disclosure and risk management frameworks in 2016.
In a note to trustees, Corrs Chambers Westgarth partner Michael Chaaya said APRA is concerned that Registrable Superannuation Entities (RSE) licensees are taking "a very narrow interpretation of conflicts management and their duties under the Prudential Standard".
"Strikingly, APRA believes that implementation of the Prudential Standard’s requirements are still in their early stages and that further steps need to be taken by many RSE licensees to improve their conflicts management practices," Mr Chaaya said.
APRA is also "concerned" that RSE licensees are failing to maintain sufficiently detailed, accurate and timely insurance data under the Prudential Standard.
"RSE licensees should review how they record and maintain their insurance data with a view to greater scrutiny by APRA," he said.
When it comes to investment governance and liquidity management, APRA is worried RSE licensees have significant weaknesses in their investment governance and risk management frameworks; are risking a lessening of the quality and timeliness of services during and after they are brought in-house; and have difficulty defining a 'liquidity event' and the liquidity profile of different assets in their liquidity stress test assumptions and modelling, Mr Chaaya said.
While RSE licensees' compliance in the area of remuneration is "generally good", APRA has identified "anomalies and errors" in remuneration reporting.
Finally, on the topic of risk management, he added that "APRA has observed that some RSE boards have yet to develop a sound understanding of the differences between risk management and compliance".
"APRA has clearly signalled what its focus areas will be. The best advice for RSE licensees is bring your policies up to standard and know that they comply with all Prudential Standards," he said.
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