The Australian Prudential Regulation Authority (APRA) will place most emphasis in its oversight of the proposed prudential standards for superannuation funds on the responsibility and governance of trustee boards.
"Most funds will have no difficulty in meeting the standards, in my view. Any well-run fund will meet the standards," APRA deputy chairman Ross Jones said at a Finsia presentation yesterday.
"[But] the big change is at the boards. We need to get a greater degree of accountability and a greater degree of transparency."
A system that required people to make compulsory contributions to their super fund required careful scrutiny, Jones argued.
"A compulsory system must have a much sounder supervisory regime around it than it has had in the past," he said.
"APRA has had more supervisory powers over small credit unions than large super funds; that needs to change."
Although he said the prudential regulator would take a principles-based approach, rather than prescribe specific processes that funds needed to comply with, APRA would require trustees to be able to understand and explain every decision made, including investment and outsourcing decisions.
"APRA has an expectation that trustees will be able to understand very clearly the reasons why they undertake certain activities, why they took particular types of investments," he said.
"An industry that is scaled to compulsion needs to expect that the public is going to have very high expectations and that their interests are going to be served.
"As a result, there is going to much more focus on the responsibilities of a trustee."
But the heightened scrutiny should not be seen as an attempt on behalf of APRA to hold trustees' hands, he said.
"One of the awkward things about this is that sometimes people have the expectation that APRA is out there almost running the fund. We are not the puppetmaster; we don't want to take this sort of approach," he said.
"The trustee is ultimately responsible, not APRA."
APRA supervisory support division executive general manager Helen Rowell said the increased scrutiny would extend to board committees.
"We have requirements about the composition of key board committees; in particular, we have indicated that any board committees that deal with prudential matters need to be checked by a director," Rowell said.
"We are aware that in some instances an investment committee is not chaired by someone who is on the board of directors."
She also said APRA expected funds to set a minimum term for board directors.
"There is a requirement to have a board renewal policy," she said.
"That is a formal policy about how you keep the membership and the thinking on a board fresh and relevant.
"We are not prescriptive of what that process should look like, or of any terms for directors, but we do expect the trustees to think what is appropriate in terms of director terms, board composition and the renewal process."
Other requirements included the formulation of a remuneration policy, annual assessment of board and individual trustee performance, and fit-and-proper requirements for responsible people.
