APRA rejects changes to super governance ‘fallacies’

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APRA member Helen Rowell has rejected a number of ‘fallacies’ around the superannuation governance changes currently before the Parliament.

Rowell rejects the idea, asserted by “some stakeholders,” that changing the governance model for super funds will reduce investment performance. Industry Super Australia has, repeatedly, argued that out-performance of retail super funds by industry funds justifies not changing governance arrangements.

“There is no reason to suggest that adding independent directors should, automatically, change the trustee’s business philosophy, strategy or business plans,” said Ms Rowell, in a speech to the AIST Governance Ideas Exchange Forum.

“Nor must it necessarily alter their investment strategy. The trustee board as a whole has always been, and will continue to be, responsible for setting their investment philosophy and strategies for funds under its oversight. Appointing independent directors that understand and support the board’s underlying strategic objectives will ensure that you can continue to run your investment strategy and operations as you always have (provided, of course, they continue to be in the best interests of members).”

The super fund governance reforms will not only impact industry super funds.

“At present, there is nothing in the law that requires public offer funds to comply with any board composition requirements. In APRA’s view, all of the industry – including public offer funds – should be subject to minimum requirements for board composition.”

“These reforms will have an impact on all segments of the superannuation industry, including the retail fund sector. The definition of independence in the Bill before parliament goes further than the Financial Services Council’s (FSC’s) governance standard that currently applies to FSC members.”

“We therefore expect to see governance practices, and board composition, strengthened across all segments of the superannuation industry as a consequence of the Bill.”

The governance reforms also won’t force changes to super fund structure or culture.

“Boards will need to consider the appropriateness of their current governance structures (including the size and composition of the board) in the context of their current (and future) fund membership, strategy and operations.”

“Beyond these requirements, however, trustees will have the flexibility to determine the composition of the board. That will enable those trustees that wish to do so to retain an equal representation model for the appointment of the non-independent directors should they feel that continues to be appropriate to their circumstances.”

“APRA’s view is that adding independent directors and maintaining the connection with the membership are not mutually exclusive. Indeed, all trustees are expected to focus on the best interests of members and the governance changes in the Bill are intended to better support that.”

APRA Chairman, Wayne Byres, recently told a Senate Committee: “APRA supports the direction of the proposed changes in the Bill as they will more closely align board composition requirements for the superannuation industry with those of other APRA-regulated industries.”

The same Senate committee is currently conducting an inquiry into the bill and is due to report on the 9th of November – the next sitting day of the Parliament.

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