The Australian Prudential Regulation Authority (APRA) has responded to the Financial Regulator Assessment Authority’s (FRAA) review report which assessed the effectiveness and capability of APRA’s supervision and resolution functions within the superannuation industry.
The review outlined five recommendations, with recommendations one through four focusing on APRA’s approach to supervision and recommendation five addressing the implementation of recovery and exit planning requirements, alongside preparedness to effectively resolve a superannuation entity.
“In relation to superannuation, the review found the supervision function is effective and capable, while its resolution function is less developed, which accords with APRA’s self-assessment,” APRA said in its response on Thursday.
In the report, FRAA commended APRA for its “honest self-reflection and evaluation”, with the regulator having prepared a self-assessment at the start of the review.
The watchdog generally agreed with APRA’s self-assessment and in comparing APRA’s regulation of banking and insurance, emphasised the need to enhance its regulation of superannuation to be more “risk-based, forward-looking and outcomes-focused, particularly at the systemic level”.
In response, APRA has said that it supports the recommendations, which “aim to build on APRA’s progress in improving superannuation trustees’ delivery of beneficial outcomes for superannuation members”.
“APRA will act on these recommendations, including through initiatives already underway. The recommendations will also be reflected in APRA’s corporate plan, which will be released next month,” the regulator said last week.
APRA chair John Lonsdale welcomed FRAA’s findings.
“The recommendations provide helpful guidance and reinforcement for a more effective APRA into the future,” Mr Lonsdale said.
FRAA also acknowledged the regulator’s progress in improving its superannuation capabilities following the 2019 APRA Capability Review and the Royal Commission.
Jones welcomes ‘future-focused’ recommendations
On Thursday, Assistant Treasurer and Minister for Financial Services Stephen Jones endorsed the review and applauded APRA for its contributions to financial services thus far.
“As Australia’s prudential regulator, APRA plays a key role in ensuring Australia has a safe and stable financial system. APRA has supported the Australian economy through its regulation of the banking, insurance, and superannuation industries during the complex challenges of recent years,” Mr Jones said.
“The FRAA review acknowledges the strengths of APRA while providing recommendations that would make APRA’s regulation of the superannuation industry more future-focused and better prepare entities, the industry, and the broader system for future shocks.
“The government welcomes APRA’s collaboration with the FRAA through this process and its receptiveness to the review’s findings.”
Mr Jones also highlighted the government's intention to reduce the frequency of the FRAA review cycle from a biennial basis to a five-yearly cycle as part of the 2023–24 federal budget. As such, the next review of APRA is set to commence in 2027.
