Australian Prudential Regulation Authority (APRA) deputy chair Margaret Cole, speaking at the AFR Super & Wealth Summit 2024, called this a “priority frontier” for the regulator amid “growing concerns” about trustee spending behaviour.
Fund expenditure will be reviewed and scrutinised with intensity, Cole declared, as APRA intensifies its focus on trustees’ compliance with the best financial interests duty introduced by the 2021 Your Future, Your Super reforms.
According to Cole, APRA’s reviews have already uncovered questionable spending, with some trustees lacking the documentation to justify certain expenses. Despite three years under this duty, adherence remains inconsistent, she said.
Cole shared that APRA has sifted through over 42,000 lines of data from the 2023 financial year alone to spot outliers and potential misuse.
“Following the evidence”, the prudential regulator identified unusually large or questionable expenditures, prompting follow-ups with trustees – and, in cases of serious concern, enforcement action.
As APRA’s data collection grows, now exceeding 50,000 entries for the 2024 financial year, the regulator anticipates uncovering even more areas of concern.
“As one of my colleagues puts it, we lifted up one rock and found a significant number of concerns,” Cole said.
“Given the sheer scale of the collections, our decision to intensify our scrutiny of expenditure does not mean we plan to review every single expenditure item reported.”
APRA last week signalled it will closely scrutinise trustee expenses where member benefit isn’t immediately evident or reasonably justified. Key areas of focus include discretionary spending on travel, entertainment and conferences, as well as outliers in spending size and payments to specific types of vendors.
The regulator is due to release its inaugural expenses data collection for FY2022-23 on Wednesday.
This data, according to Cole, will show that total industry expenditure was $10.83 billion for the period, with investment-related expenses accounting for more than 33 per cent of spending, advice for 11 per cent and administration and other expenses for 53 per cent.
She, however, confirmed that the data will not “name and shame” trustees for levels and types of expenditure nor will it “blacklist” certain types of expenditure, such as advertising or payments to unions.
“As we began preparing for the publication of the data, a suggestion was made to promote the release by publishing tables of the top 10 biggest spenders across categories. We decided against it,” Cole said.
“The scale of expenditure in a particular category is not necessarily a measure of whether the expenditure is good, bad or appropriate. Some very large items of expenditure may be justifiable as being in the best financial interests of members. Conversely, even relatively small items of expenditure might not be OK,” she said.
Ultimately, Cole said, expectation for trustees to act in the best financial interests of members, is “not new, nor unreasonable, nor an additional burden to their primary responsibilities”.
“It is ingrained in the best financial interests duty (BFID), and, more fundamentally, a basic requirement of an industry created to help members build savings for their retirement,” she said.
Broadly speaking, Cole noted, many trustees are compliant with their obligations under BFID on paper.
“But the paper trail isn’t what this is all about,” Cole said.
“This isn’t about form over substance. It’s about the substantive responsibility of trustees to put the best financial interests of members first. It’s time to see that translate into action, without exception. There is no room for cynicism in this important task.”
