APRA review highlights the need for improved valuation and liquidity risk governance in superannuation

The Australian Prudential Regulation Authority (APRA) has released findings from a review into superannuation trustees’ progress in implementing enhanced valuation governance and liquidity risk management requirements. The findings will help trustees in aligning their practices with Prudential Standard SPS 530 Investment Governance (SPS 530), including in relation to the use of independent external asset valuations and the effective management of potential conflicts of interest in valuation processes.

Assets of APRA-regulated superannuation entities totalled approximately $2.7 trillion at the end of 30 June 2024, with around $500 billion invested in unlisted assets such as property, infrastructure, credit and equity. As the proportion of unlisted assets continues to increase, addressing risks related to valuation governance and liquidity risk management is a critical issue for the industry and a priority for APRA. 

In January 2023, APRA updated SPS 530 to enhance requirements for valuations and liquidity management.  APRA’s latest review, which commenced in December 2023, examined the practices of 23 in-scope trustees, representing approximately 80% of total assets managed by APRA-regulated superannuation entities.  The review involved trustees with a range of different asset sizes and business models, including some platform-based businesses. 

The review found that while trustee capability and approach have generally improved since APRA’s last unlisted asset review in 2021, a significant proportion of trustees still displayed material gaps in key areas.  The findings indicated that 12 of the 23 in-scope RSE licensees require material improvements in either or both their valuation governance or liquidity risk management frameworks to meet the requirements of SPS 530.

In relation to unlisted asset valuation governance, particular weaknesses were observed in the areas of board oversight and conflict of interest management, revaluation frequency and triggers, valuation control, and fair value reporting.  In relation to liquidity risk management, particular weaknesses were observed in the areas of liquidity stress trigger frameworks, unlisted asset liquidity risks and liquidity action plans.

These findings are concerning and highlight the need to further lift practices across the industry. APRA will directly engage with those trustees identified as having deficiencies and will expect them to formulate appropriate and timely remediation plans. APRA expects all trustees to review the findings, assess themselves against the prudential standard, and enhance their valuation governance and liquidity risk frameworks where needed. APRA will take further action within its regulatory remit to enforce the provisions of SPS 530 and related regulatory requirements, where necessary.

APRA Deputy Chair Margaret Cole said superannuation fund members rely on trustees to invest their retirement savings prudently and protect and grow their money using strong risk management practices. Trustees must ensure they have timely and reliable information on the value of assets when making investment decisions. They also need to have effective processes in place to manage liquidity risk.

“Our superannuation system ranks among the largest globally and its performance has been improved by APRA’s efforts to eliminate underperforming funds, scrutinise trustees’ expenses and enhance asset valuation practices.

“These latest review findings are concerning and indicative of the fact that many trustees have more work to do to lift their valuation and liquidity risk management practices. APRA expects trustees to review these findings carefully and formulate appropriate remediation plans where needed. APRA will not hesitate to take further action where necessary to enforce the provisions of SPS 530 and related regulations, including the responsibilities of relevant accountable persons under the upcoming Financial Accountability Regime,” Ms Cole said.

You can find the link to the review on APRA’s website: Governance of Unlisted Asset Valuation and Liquidity Risk Management in Superannuation - December 2024.