options for improving the safety of superannuation
Post on 21-Jan-2016
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Options for Improving the Safety of Superannuation
Issues Paper
Agenda
• Introduction
• Licensing regime
• Legislative structure
• Member participation
• Financial assistance
• Other issues
• Closing
Licensing
• 3 options– APRA licence– ASIC licence– Both
• Twin peaks model– APRA dealing with prudential issues– ASIC responsible for consumer protection and
market integrity
Current arrangements
• Funds offering to the public required to have APRA approved trustee
• Funds offering to the public required to have an ASIC dealers licence– under FSR funds will also be required to be
licensed to provide advice
• 50% of Approved trustees have both licences
ASIC licence
• Similar to the licence for managed investment schemes– to operate the fund– to deal in and advise on interests in the fund
• Licence criteria addressed at competence and consumer protection matters
• Individual trustees licensed as a group– outsource some licence obligations
APRA licence
• Extend licensing to all funds other than:– exempt public sector superannuation schemes– self managed superannuation funds
• Similar to approved trustee requirements
• Benefits of licensing– notice of funds– imposition of conditions– licensing sanctions
Dual licensing
• Both APRA and ASIC licence
• Under FSR many APRA regulated bodies will have dual licences
• Different regulatory purposes
• Overlaps dealt with– legislatively– administratively
Compliance plans
• Adjunct to licensing or separate requirement
• Required under Corporations Act for managed investments and AFSLs
• How the entity will ensure compliance with legislative requirements
• Subject to annual audit
• Transitional arrangements
Issues for discussion
• Is licensing necessary?
• Which kind of licence?
• What to licence - the fund or the trustees?
• Different licences for different funds or one?
• Are additional measures for reducing overlaps necessary?
Issues cont’d
• Mechanisms for addressing industry restructuring– possible changes to the self managed fund
threshold– portablility
• Appropriate transition
• How to fund?
Legislative Structure
• Prudential standards making power– content of standards
• Three-tiered structure– Act, prudential standards, guidance notes
• Separate retirement incomes and prudential provisions– longer term
Prudential standards power
• Aims– simplify legislation– enhance flexibility– harmonise with other prudential regimes
• Options– insert standards making power immediately and
move to three-tiered structure in medium term– Use existing powers in SIS to create standards
Issues for discussion• Are there already sufficient powers in SIS to
achieve desired goals?
• Is harmonisation with other prudential regulatory regimes necessary and/or appropriate for superannuation?
• Can simplicity be achieved with enforceable standards?
• Impact on existing legislation and regulations
Proposed standards
• Investment rules
• Capital adequacy
• Outsourcing
• Governance and operational risk
Investment rules• Aims
– consistent with members expectations– diversification– oversight of delegated activities– regular assessment
• Options– revise existing operating standards– prudential standard based on APRA’s circular– compliance plan
Issues for discussion
• Level of detail of guidance
• Members questioning trustees decisions
• Should APRA be dictating portfolio choices
• Trustee as single responsible entity
• Impact on retirement incomes
Capital adequacy
• Aims– financial substance– incentive to manage fund well– buffer against operational or governance risk
• Proposal– reform existing requirements for approved
trustees– apply these to other superannuation funds
Reforming existing requirements
• Need to be able to access capital in all cases
• Avoid inappropriate double dipping
• Clarify definitional inconsistencies
• Review guarantee provisions
• Examine all options including insurance
• Review level and composition of capital requirements
Bringing other funds in
• At least the same requirements as for managed investments
• No in principle difference with other approved trustee funds– except quantum
• Transitional period of two years
Issues for discussion• How would capital be funded?• Accumulation v defined benefit funds?• How would capital be held?• How to implement?• Compliance costs?• For each fund?• Risk mitigation factors?• Impact of risk profile and outsourcing?
Outsourcing
• Aim– to ensure risks clearly identified and managed– appropriate standards and scrutiny
• Proposal– requirements similar to those applying to ADIs– minimum requirements that contract should
address– could be done through standard or regulation
Issues for discussion
• Extent to which standards should be binding on third parties
• Implementation - standard or regulation
• Overlap with existing limited regulation of custodians and investment managers
• Compliance costs
Governance and operational risk• Aim
– systematic identification, assessment and management of risk
– more effective risk based supervision– better targeting of requirements
• Proposal– single standard to deal with operational risk and
governance issues– broader focus
Options
• Prudential standards power– remove existing provisions from SIS
• Bring all requirements together as operating standards under SIS
• Similar to Prudential Standard GPS 220 Risk Management for General Insurers
Issues for discussion
• Interrelationship with capital requirements and insurance
• Compliance costs
• Compliance audit
Member participation
• Annual general meetings– right to request a meeting– master funds– costs
• Public disclosure of annual returns– which regulator– what information– which funds to exclude
Member participation cont’d
• Related party transactions– different focus to in house asset provisions of
SIS– would voting requirements work for
superannuation– compliance costs
Financial assistance• Extend to losses from misleading and deceptive
conduct
• Issues– omissions– overlap with existing requirements– application to predictions– evidentiary requirements– how to know the mind of the member
Issues cont’d
– moral hazard issues– funding compensation arrangements
Other issues
• Productivity Commission expected to report next week
• Will consider prudential and governance issues from Productivity Commission Report and Watson Committee Reports
Where to from here
• SWG to put out more detailed paper next week canvassing the issues
• Focus group discussions towards end January
• Submissions close 1 February
• Report to Government by end March
• Any legislation early in second half of 2002
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