APRA Deputy Chair Margaret Cole - Remarks to the Conexus Chair Forum Sorrento

Thank you and good afternoon everyone. It’s good to be here – and to be joined by Simone Constant – to discuss APRA and ASIC’s priorities for 2025.

I want to focus my remarks on governance, an area that is fundamental to your roles as Chairs and an area of heightened interest to APRA.

But rather than talk in the abstract about good governance, I’d like to discuss the importance of your governance roles in the context of some of the issues and challenges you are facing.  

A good place to begin is what members’ money is spent on. As you may have seen, in line with our commitment to transparency, APRA released the 2024 fund-level expenditure data earlier today.  This will now be published on an annual cycle.

As with the 2023 expenditure information published in late October last year, this latest data is being closely reviewed and scrutinised by APRA for any outliers in spending that might not appear to be in the best financial interests of members. This is part of our intensified scrutiny of trustee expenditure that we outlined in a letter to you a couple of months ago. 

Since then, we’ve been hearing feedback that there are some in the industry who think we’re focusing on the wrong issues or that we’re micro-focused on, say, the cost of a cup of coffee. Let me tell you, that isn’t what this is all about. 

How members’ money is spent matters. It’s a basic hygiene issue.

As Chairs you set the tone from the top in your organisations. You oversee the creation of policy and processes around expenditure. You have oversight of how your businesses are run, including how the executive spend and invest members’ money. Decisions made here have direct implications for members. Your role is critical.

This is also the case for investment governance. 

In December, APRA published the findings from a thematic review of valuation and liquidity risk governance. The review assessed detailed responses and data from 23 trustees, covering approximately 80% of total assets managed by APRA-regulated superannuation entities. While asset valuation governance has improved since our 2021 review, the findings show 12 of the 23 in-scope trustees require material improvement in either or both their valuation governance or liquidity risk frameworks. APRA observed cases of weaknesses in board oversight of asset valuations and conflicts of interest management, among other things.

Members rely on you to invest their money prudently and to make investment decisions based on timely and reliable information on asset valuations. As part of your oversight, you need to ensure that you are receiving appropriate valuation data and insights and that you can stand behind what are required to be fair valuations on your super fund’s books. There need to be controls in place to ensure that investment decision-makers are not involved in approval of valuation decisions and that there is sufficient challenge of asset valuations, which mainly come from external investment managers or valuers.

Another tangible example of how strong governance – or the lack thereof – affects member outcomes relates to the operational capabilities of your funds. With the implementation of CPS 230 this year there should be a strong focus on your operational risk management. 

We have had feedback from industry participants and we’ve observed for ourselves that, generally speaking, operational systems in super are underdeveloped and need to be modernised. In the Conexus Institute’s new report, David Bell and Geoff Warren highlight how the industry is struggling with legacy systems and processes and the impact this is having on member services. As Chairs and senior leaders, you should be driving the modernisation of your infrastructure, so that you are in the strongest possible position to manage the ever-increasing demands on your systems and deliver the service members have the right to expect.

In dealing with these and other issues, both the collective experience and individual capabilities of members of your board are critical.

As outlined in our 2024-25 Corporate Plan, APRA is undertaking a review of the core governance prudential standards across banking, insurance and superannuation. These standards include the core superannuation standard Governance SPS 510 and the supporting standard Fit and Proper SPS 520. Our intention is to clarify, simplify and consolidate the standards, drive improvements and ensure the standards align with contemporary practice. To clarify, we are not reviewing the different ownership models.  

The review is the latest step in a series of actions undertaken by APRA in recent years, in collaboration with peer regulators and other stakeholders across the financial services sector, to improve governance and risk culture in the industries we regulate.

APRA will release a governance discussion paper soon and we look forward to engaging with you, as well as leaders from banking and insurance industries, on updating the standards.

From a superannuation perspective, the timing of this work couldn’t be more apt. Good governance is crucial as the industry transitions its focus from the accumulation phase to the retirement phase, and as superannuation becomes increasingly interconnected within the financial system. 

As the industry has grown in scale and complexity, the rigour, skills and experience of trustee boards is increasingly being put to the test. Public scrutiny of trustee board governance is on the rise, as we’ve seen from the media coverage over the past year.

Funds with robust governance put themselves in a much stronger position to develop effective strategies and respond to challenges. Challenges include reputational risk. 

Take the politics out of this. This is a system to be proud of. That pride can’t be allowed to foster complacency or a blind eye to practices that have no place in today’s financial services giants. APRA is not attacking any particular board model but we do take issue with some practices. And frankly so should you.

Many of the entities we regulate have made progress in strengthening governance in recent years. But there remains room for improvement. 

Based on the observations of our supervision teams across industries, instances of poor governance practices tend to occur in three broad areas – none of which are unique to superannuation. 

First, in individual cases where we’ve had material prudential concerns regarding an entity’s operational risk and risk culture, a lack of good governance is often the root cause. Insufficient ownership from the top in these areas has led to APRA taking enforcement action such as court-enforceable undertakings, imposing licence conditions or, in banking and insurance, additional capital requirements.

The second area is lack of robustness in board governance processes, including in relation to the nomination and appointment of directors. This manifests itself in the inconsistent use of board skills matrices and performance reviews to drive continuous improvement in board capability. The lack of robustness is particularly prevalent in fit and proper processes. SPS 520's specific objective minimum requirements are that individuals have not been disqualified from holding a particular position or convicted of an offence of dishonesty. It otherwise leaves a great deal of discretion over whether those nominated to hold key roles are of good character and adequately – or even better, appropriately – skilled. Substantive assessment is critical, not wall papering.

The third is the persistence of poor governance in processes such as board renewal and tenure by some entities despite overall industry improvement and APRA’s supervisory focus in this area in recent years. We will need to raise minimum bars to address these persistent issues.

I want to be clear. In saying this I am not minimising the importance of the view of the member. I am reflecting a point back that I have heard from several in this room. 

In our discussions across our regulated industries on governance, a number of “pain points” have been identified which we acknowledge and are seeking to address. 

These include:

Inconsistency across APRA’s standards. We currently have five prudential standards and multiple sets of guidance relating to governance across banking, insurance and super. This has resulted in slightly different expectations and requirements and a lack of clarity about the consistency of APRA’s expectations across our regulated industries. Our aim is to bring all these policy settings together into a single cross-industry standard on board governance, fit and proper and conflicts, while respecting aspects specific to each industry under the industry acts.

There are also comments about reporting burden and duplication specifically in terms of the overlap of definitions and reporting on “accountable persons” under the Financial Accountability Regime and “responsible persons” under the Fit and Proper standard. We acknowledge this challenge and will explore opportunities to streamline and simplify this.

Your members, regulators and the community expect high standards of governance from the superannuation industry. It’s what you are there to lead, and it is critical to the resilience of your funds and to the outcomes for your members. We look forward to engaging with you in our upcoming review of the core governance standards for APRA-regulated entities. 

Just before I hand over to Simone, I would like to emphasise the importance of APRA’s collaboration with ASIC. In many aspects of the work we do in super, we engage closely with ASIC to ensure we are aligned and consistent in our approach to the industry. 

Over to you, Simone…