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A review of APRA’s capabilities was recommended by the 2018 Hayne Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry [Hayne]. It recommended a stand-alone superannuation regulator. From 2004, statutory interventions have improved the legislated ability of APRA to properly supervise the superannuation system. Superannuation plays a systemically important role in the Australian economy. For individuals in an environment of compulsory contributions and no universal state aged pension, the proper supervision of superannuation can be a matter of life or death, metaphorically or otherwise. In Australia, retirees bear market risk.

This Capability Review concludes there ‘are no simple solutions’ and that ‘[c]ultural change is necessary [within APRA]’.

This is what the Capability Review says about APRA:

‘[I]t is an immature organisation…’ (p27);

‘GCA cannot be regulated and supervised using traditional models employed by APRA’ (GCA being Governance, Culture and Accountability), (p78);

‘APRA needs a cultural and regulatory reset’ (p86);

‘APRA should change the way it engages with boards and trustees’ (p88);

‘…most importantly, challenge internal mindsets that do not give GCA risks appropriate weight in its policy and supervisory work.’ (p90;

‘…ensure the policy framework is focussed on assessing appropriate outcomes around GCA risk in regulated entities, not just appropriate processes’ (Recommendation 4.1(a)).

In the regulation of superannuation entities, the criticism becomes more trenchant, scathing even:

‘It needs to refocus its attention to regulating trustees to deliver good retirement outcomes…’ (p97);

‘APRA was aware of the…drag on superannuation returns due to conflicts of interest ― but never did anything about it.’ (p100);

‘[L]ittle focus on member outcomes and whether trustees had complied with legal requirements designed to protect member savings, including the sole purpose test…’. (p102);

‘[W]hile APRA looked at potential conflicts of interest between individual directors and the trustee, the supervisors paid little attention to the risk of conflicts of interest between trustees and related parties in their broader group structures and the members of the fund’. (pp102-3);

‘Supervisors appear to focus on factors contributing to fund health rather than outcomes themselves’’. (p104);

‘APRA encouraged trustees to look at the metrics … rather than focussing on issues pertinent to member outcomes in retirement ― the key purpose in superannuation’. (p104);

‘…only one member of APRA’s supervision team had been there for 18 months’. (p107);

‘The Panel considers that issues around attracting and replacing staff, the high turnover rate and lack of superannuation expertise are…symptomatic of APRA’s treatment of superannuation relative to other industries. (p107);

‘PAIRS [an APRA system] does not…assess member outcomes or related issues such as: conflicts of interest risks…related party transactions; or net returns’. (p108);

‘APRA does not ensure that it is provided with accurate data…’ (p108), or any product level data for “choice” products. ‘This means that members in choice products cannot always compare the returns and costs of their product with benchmarks or other products’. (p109);

‘…non-reporting has been apparent in APRA data at least since 2004…the regulator appears to have enabled this non-reporting’. (p109 citing Productive Commission Superannuation Inquiry 2018);

‘It [APRA] is not held to account against its mandate’. (p129).

Such damning evidence of organisation failure begs the question why are there not mass terminations of APRA executives?

These are not new issues in APRA supervisory failure. ‘APRA conducted five prudential reviews of Trio [then Tolhurst, later Astarra] between April 2004 and June 2009’ (cited in Senate, PJC, Parliament of Australia, Inquiry into the collapse of Trio Capital (2012 69 [4.22]), described as ‘“Active Supervision”, meaning on-site visits, examination of investment policy and the trusteeship. Concerns about the quality of the trusteeship were “not to be of great urgency”’. (Ibid 69-70 Greg Brunner, APRA). In its 2005 prudential review, APRA were ‘satisfied that governance issues (related party arrangements) appeared to be addressed’ (Ibid 13). Later, in 2009, ASIC reported ‘it was not until December 2009 that the [then] directors of the ASF [a Trio fund] ran the fund for fraudulent purposes’ (Ibid 75 Glen Unicomb, ASIC).

Had APRA read important internal correspondence from the non-executive directors to the executive directors in early 2005 as part of its “Active Supervision” that much later 2009 development of egregious behaviour may have been prevented. Perhaps they did read it, but given the excoriating criticism in the Capability Review, may not have known how to act on it since it directly addressed GCA issues of the time.

For the record, to be absolutely clear, as advised to APRA in writing by counsel, this author has never been a director of any company when it was called “Trio”. Assertions to contrary are false, a factual mistake by APRA more interested in administrative convenience than fact, which remains uncorrected and potentially defamatory.