Superannuation (prudential standard) determination No. 6 of 2012
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Superannuation Industry (Supervision) Act 1993, section 34C(1)
Under subsection 34C(1) of the Superannuation Industry (Supervision) Act 1993 (the Act), APRA has the power to determine standards (prudential standards), in writing, in relation to prudential matters to be complied with by all RSE licensees of registrable superannuation entities (RSEs).
On 15 November 2012, APRA made Superannuation (prudential standard) determination No. 6 of 2012 under subsection 34C(1) of the Act (the instrument).
The instrument commences upon registration on the Federal Register of Legislative Instruments.[1]
- Background
The Government indicated, in its response to the recommendations of the Super System Review in December 2010, support for the recommendation that APRA be given the power to make prudential standards in respect of superannuation, consistent with APRA’s existing powers in respect of banking and insurance.[2]
In April 2012, APRA released 11 draft prudential standards to implement APRA’s proposed prudential framework for superannuation, incorporating those elements of the Government’s superannuation reforms that come within APRA’s mandate. APRA’s proposals covered prudential requirements common to other APRA-regulated industries as well as superannuation-specific requirements. The proposals also included relocating some current requirements in the Act and Superannuation Industry (Supervision) Regulations 1994 and non-binding guidance material into the new prudential standards, and harmonising the requirements for superannuation with those applying to other APRA-regulated industries to the extent practical.
APRA was granted the ability to make prudential standards in relation to superannuation under the Act by the passage of the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Act 2012 on 8 September 2012.
2. Purpose and operation of the instrument
The purpose of the instrument is to make Prudential Standard SPS 510 Governance (SPS 510), which sets out prudential requirements for minimum foundations of good governance of an RSE licensee. The objective of SPS 510 is to ensure that an RSE licensee’s business operations are managed soundly and prudently by a competent Board, which can make reasonable and impartial business judgements, and in doing so act in the best interests of beneficiaries and duly consider the impact of its decisions on beneficiaries.
The key requirements of SPS 510 are that an RSE licensee must:
- have a policy on Board renewal and procedures for assessing Board performance;
- establish and maintain a Remuneration Policy which covers all forms and all sources of remuneration and aligns remuneration with risk management;
- establish a Board Remuneration Committee, which has at least three members, all of whom are non-executive directors, to have responsibility, amongst other matters, for conducting regular reviews of the Remuneration Policy; and
- establish a Board Audit Committee, which has at least three members, all of whom are non-executive directors, to assist the Board by providing an objective non-executive review of the RSE licensee’s financial reporting and risk management framework.
3. Consultation
In September 2011, APRA released for public consultation a discussion paper, Prudential Standards for Superannuation, which outlined proposals, including those Stronger Super reforms that the Government had recommended APRA implement in prudential standards. A suite of 12 prudential standards, including a standard dealing with governance, was described in the paper. APRA received 41 written submissions in response to this discussion paper, presented the reforms via a wide range of industry forums and held discussions with a variety of industry participants.
In a second consultation round, APRA released a Response to Submissions – Prudential standards for superannuation and a package of 11 draft prudential standards on 27 April 2012. In the response, APRA outlined the significant issues raised in the submissions and APRA’s proposed response to them.
APRA received 38 written submissions in response to the draft prudential standards; again, APRA also presented the reforms at industry forums and met with individual industry participants on the proposed requirements.
APRA took note of the issues raised in submissions on the draft standard and the final version of SPS 510 aligns the requirements relating to Board performance assessment to those contained in the prudential standards APRA has determined for other industries such that the requirement no longer specifies that the annual Board performance assessment be ‘independent and objective’. A requirement to seek APRA approval prior to outsourcing the internal audit function has also been removed from the final version of SPS 510.
4. Regulation Impact Statement
A Regulation Impact Statement is required for the superannuation prudential standards.
5. Statement of compatibility prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
The legislative instrument the subject of this explanatory statement does not engage any of the applicable rights or freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. Accordingly, in APRA’s assessment, this legislative instrument is compatible with human rights.
[1] Paragraphs 69 and 70 of Prudential Standard SPS 510 Governance (SPS 510) commence on the date of registration of the instrument on the Federal Register of Legislative Instruments. SPS 510 otherwise commences on 1 July 2013.
[2] Stronger Super, Recommendation 10.2, p. 60.