Super funds could be required to get approval from the Australian Prudential Regulation Authority (APRA) before they enter into foreign investments deals, according to a law firm partner.
The APRA draft prudential standard for outsourcing in the superannuation industry, SPS 231, requires funds to consult APRA on off-shoring arrangements in relation to risk management.
But the current wording of the draft legislation implies this approval process includes investments as well, Holding Redlich partner Jenny Willcocks said at the Australian Superannuation Investments conference (ASI) 2012.
"If you have an offshore arrangement, you are required to consult with APRA before you enter into it," she said.
"APRA has to satisfy itself that the impact is adequately addressed in a risk management strategy, and if it is not satisfied it may require other arrangements to be made for the activity."
"There are no time frames stated for APRA to respond. Obviously if you are in the process of arranging an investment offshore, you don't have time to sit around and go to APRA see if it is happy with it," she said.
Willcocks said the situation was probably overlooked by APRA when drafting the standard.
"I suspect this comes from adopting bank and insurance prudential standards to superannuation without really thinking through the consequences."
"I think it is directed at things like putting a call centre in Bangalore, but what it will mean for the superannuation industry is that it could potentially capture investments offshore."
She said it was important for funds to push APRA for further details on this matter.
"We really do need the detail of how this is going to work, particularly in relation to offshore investments," she said.
"I very much doubt that APRA has the resources or expertise to be assessing the very complex and myriad of investments that funds enter into," Willcocks said.
