Not all superannuation funds are adequately monitoring their directors' performance, an APRA review has found.
In a letter addressed to registrable superannuation entities (RSEs), APRA released findings from its thematic review into board governance practices that assessed how RSEs were holding up against new prudential standards that were introduced in July 2013.
A requisite of Prudential Standard SPS 510 Governance was that RSEs needed to have procedures in place for checking, at least once a year, “the board’s performance relative to its objectives and the performance of individual directors”.
In assessing how RSEs understood and evaluated board objectives and how the board and directors’ performance was assessed, the prudential regulator had found this to be a “notably weaker area of governance practice”.
For example, some RSE boards only assessed board performance as a whole, rather than assessing each individual director.
“APRA identified some examples of inconsistencies between the formal policy for board assessments, typically set out as part of board charters, and the implementation of performance evaluations in practice,” the letter said.
“There was an absence of clearly articulated objectives on which to base the performance assessment, beyond meeting fitness and propriety criteria.
“There was also little evidence of setting key performance indicator metrics or measures (such as relative to business plans) to assist in reviewing board effectiveness.”
Nearly half of the review participants failed to assess their performance against the overarching strategy of the RSE licensee, which is suggested by SPG 510.
Furthermore, frameworks set in place to address board underperformance was also described by APRA in the letter to be “commonly lacking across the sample population”.
“Almost two thirds had no evidence of a process for dealing with underperformance beyond steps for removal of a director for breaching fitness and propriety criteria.
“APRA expects that boards would consider as an initial remedial step, for example, whether training and education programs may address the reasons leading to the underperformance at board and individual director level.”
Addressing identified areas of improvement “in a timely manner” was “essential”, the letter said.
“APRA observed that a number of assessments focused primarily or solely on relatively subjective assessment of the skills and capabilities of individual directors.
“Better practice performance assessments also included behavioural aspects, such as quality and level of contribution, collegiality and directors’ approach to teamwork.”
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