Superannuation data transformation publications and confidentiality response

To: All Registrable Superannuation Entity licensee

This letter sets out the Australian Prudential Regulation Authority’s (APRA) response to feedback received on the proposed publication of certain data, including the publication and confidentiality positions for expenses and detailed asset allocation data, and to determine certain data as non-confidential. Draft proposals were released for consultation through the Superannuation Data Transformation (SDT) Publications and Confidentiality Consultation Letter dated 10 October 2023 (‘Consultation Letter’).

Consultation closed on 29 November 2023, with 10 written submissions received in response to the proposals. APRA held two roundtables, met with industry working groups and also met with individual superannuation industry stakeholders and RSE licensees as requested.

Submissions were generally supportive of the publication and confidentiality proposals, however raised some concerns. Following review of the feedback, APRA has retained most of the proposals, with some minor modifications. APRA will also consult with the industry working group on expenses reporting in relation to the drafting of explanatory notes to provide additional context to the publications.

The key concerns raised in submissions relating to the expenditure proposals were: 

• the publication of total expenses for categories where there is only one service provider may reveal commercially sensitive information even though APRA did not propose to publish the service provider details;
• potential inconsistencies between expenditure data reported to APRA compared to other disclosures such as the Superannuation Industry (Supervision) Amendment (Annual Members’ Meetings Notices) Regulations 2022 (‘AMM’) notice may lead to confusion without additional context;
• the current definition of ‘promoter’ is broader than APRA intends and captures service providers beyond APRA’s intent as outlined in the publication proposals; and
• publication of ‘profit’ when publishing expense margin contribution to related party profit who are wholly owned subsidiaries, and therefore are still ultimately allocated to the fund, may be misunderstood or confusing to users of the publication without additional context.

The key concerns raised in submissions relating to the proposals for publication of data on detailed asset class characteristics were:

• the publication of investment values for detailed asset allocation may release proprietary investment strategies if published at the investment option level; and
• the publication of investment values by detailed asset allocation characteristics in relation to unlisted assets may disclose information regarding the RSE licensee’s valuation of individual assets, particularly for asset classes where there may be few or even single assets for each combination of asset class characteristics, if published at the investment option or fund level. This may be mitigated through sufficient lag in publication timeframe.

APRA has included a summary of the key feedback and APRA’s response for the publication and confidentiality proposals for expenses and detailed asset class characteristics in Appendix 1.

A summary table of all proposals with any changes to the publications or confidentiality proposed in response to feedback raised is in Appendix 2.

APRA has also included marked up versions of the publication table mock-ups as attachments to this letter (Attachments A and B).

APRA has also included a marked up visual representation of the confidentiality proposals for each table in the reporting standards in Attachment C.

Next steps

The data collected by APRA will be determined non-confidential prior to the release of the new publications. The new publications are expected to be released in August 2024.

APRA seeks feedback on the proposed update to the definition of ‘Promoter’ under Reporting Standard SRS 101.0 Definitions for Superannuation Data Collection as outlined in Appendix 3 by 26 April 2024.

If you have any questions, please contact SuperDataTransformation@apra.gov.au.

Yours sincerely,

Megan Fenner
General Manager (acting)
Macro and Industry Insights

Appendix 1 – feedback and response

Summary of key feedback and APRA’s response: Proposals on publication and confidentiality of expenses data

Expenditure by expense type (fund-level)

APRA proposed to publish fund level data on total expenditure for each combination of expense types, expense group types and service arrangement engagement types reported in Reporting Standard SRS 332 Expenses (SRS 332.0), SRF 332.0 Table 2 Administration and other expenses.
Feedback for this proposal was generally positive, however several submissions raised concerns in relation to the disclosure of expense categories where they relate to a single service provider as this could reveal pricing arrangements.

Stakeholders highlighted that this would lead to APRA publishing commercially sensitive data that may be subject to confidentiality agreements. Some submissions indicated there was a risk of commercial and member detriment arising as service providers may not want to provide services to superannuation funds if their confidential pricing could be inferred from APRA’s publications.

One submission suggested that APRA develop a framework for granting non-confidentiality exemptions on a case-by-case basis, perhaps with some guidelines to provide clarity and remove subjectivity.

Given the strong public interest in transparency on fund expenditure, APRA will retain the original proposal of publishing fund level data for each expense category total. Though submissions raised concerns about the potential disclosure of commercially sensitive information where there is only one service provider, APRA will only publish the total expense amount, not specific pricing information, as it is not possible to deduce contract terms, the specific services provided and pricing structures from total figures alone.

Further, APRA has not observed any adverse impact on service providers nor their willingness to serve the superannuation sector due to these disclosures, with no evidence provided as part of submissions that APRA’s publication of total expense amounts for categories such as custody since 2014 has negatively impacted service providers or competition in the industry (including from service providers).

APRA considers the information disadvantage of publicly reporting total expense amounts as minimal and that it does not impede an entity's ability to compete in the market fairly. While acknowledging concerns about disclosing total expenditure for a single service provider, APRA notes that many services provided to funds are not directly comparable because of the unique mix of services embedded within each agreement.

Total expenses with the name of each payee/service provider (fund-level)

APRA proposed to publish the total expenses with the name of each payee/service provider for the following expenses:

-    Promotion, Marketing & Sponsorship expenses.
-    All expenses with Industrial Bodies.
-    All expenses with Related Parties.
-    Total director and other executive remuneration expenses.
-    Political Donations.

APRA proposed to include classifications to enable identification of any double counting across the proposed publication tables.

Feedback for this proposal was generally supportive with respect to the intent of the proposal, however there were concerns raised with respect to potential inconsistencies between APRA reporting and other expenses disclosure.

Several submissions raised concerns that inconsistencies across the different reporting and disclosure requirements without providing additional context may cause confusion for users of the data. For example, while the definition of the expense types proposed for publication are consistent, disclosures under AMM are completed on a cash payments basis, while reporting under SRS 332.0 Expenses aligns to the financial statements and are on an accruals basis consistent with the accounting standards.

Two submissions suggested that APRA should delay publishing data such as related party payments and marketing expenses until such time as consistency is reached between the way these are reported across the AMM notice and RSE financial statements.

APRA analysed a sample of reporting under AMM disclosures against the publication proposed and has sought further information from entities to inform the explanatory notes. APRA intends to include the following explanation:

Small differences between the key expenditure types in APRA’s publication and the fund’s AMM notice may exist due to timing differences on cash payments made during the year (disclosed in the AMM notice) and expenses accrued during the year. Reporting under SRS 332.0 Expenses aligns to the financial statements and are on an accruals basis, and excludes GST to the extent that it can be claimed back from the Australian Taxation Office consistent with the accounting standards.

APRA will also direct users of the publication to refer to RSE AMM notices where RSE licensees can provide any additional context on the disclosures, particularly with respect to Promotion, Marketing & Sponsorship expenses.

Notwithstanding the above, APRA would expect the classification of expense categories to be consistently applied across AMM and SRS 332.0, with differences typically immaterial or averaging out over time. The reporting in SRS 332.0 has provided an opportunity for funds to improve data infrastructure to support higher quality reporting relating to all fund expenditure.

Comparability of total expense amounts across superannuation funds

Several submissions suggested that APRA should provide additional context about the relativity of the expenses amounts within the publication, such as ratios incorporating the size of funds or total expenses per member.

APRA will include an expense ratio based on average quarterly net assets of the RSE over the year for comparability of total expense amounts.

Publication of further classifications for Promotion, Marketing & Sponsorship expenses

One submission highlighted that the sub classifications including ‘Advertising or Marketing’ and ‘Sponsorship’ are open to interpretation in some cases and, as such, funds will be applying their own interpretation. There was concern that this might impact the comparability of information.

One submission also raised the potential for commercial and member detriment from the publication of individual sponsorship expenditure. The publication of sponsorship expenditure where there is a single arrangement could have the unintended consequence of driving up future costs of such sponsorships, as the market will have the ability to see what alternate vendors are charging each fund for a service and raise their base fees to impose higher minimum prices in the market.

APRA will publish the data as proposed, including the expense type classification. RSE licensee’s disclosures under the AMM notice already include details of each payee. Typically, it will already be evident which payments are in respect of sponsorship from the payee details. APRA also expects that additional transparency on fund’s classifications will improve the consistency of reporting over time.

Total expenses with the name of the payee where the payee is a promoter (fund-level)

APRA proposed to publish total expenses with the name of the payee where the payee is a promoter to enable identification of any double counting across the proposed publication tables.

Feedback on this proposal was mixed, with most submissions supportive of the proposal, however two submissions raised concerns about the publication of data relating to promoters.

It was suggested that APRA consider publishing a clearer definition of a ‘promoter’ to ensure this information is consistently and accurately reported. In response to this feedback, APRA will delay the inclusion of the ‘promoter’ service arrangement type indicator in the promotion marketing and sponsorship expenses table and consult on a refined definition (see Appendix 3).

One submission raised concerns with respect to the total disclosure of promoter activities where they traverse beyond the traditional service offering of promoting a fund. It was identified that many promoter arrangements extend to operational activities such as administration, investment and portfolio management, service provider management, IT development and technology services.

In response to this feedback, APRA will publish the total expenses with promoters by expense type.

Expense margin contribution to related party service providers

APRA proposed to publish the total expense margin contribution to related party service providers profit (reported in SRS 332.0 Table 4 Related Party Reporting) by service provider. APRA proposes to segment the data by the type of relationship with the service provider, e.g. wholly owned subsidiary, partly owned subsidiary, parent or group company and other relationship.

Feedback in relation to total expense margin contribution to related party service providers profit was mixed. One submission was very supportive of increased transparency where any surplus or service provider profit is passed on to related parties. While other submissions, though generally supportive of the principles, raised some specific concerns.

One submission raised concerns in relation to publishing the data in respect of wholly owned subsidiaries, as margins retained by wholly owned subsidiaries do not impact members’ funds as the monies are still ultimately held by the fund. The submission suggested that expense margin contribution to wholly owned subsidiaries profit be excluded from the publication or relabelled as ‘surplus’ for profit to member funds.

APRA will not label these differently, however APRA will provide additional context in the publication to explicitly outline where these amounts don’t impact member outcomes in the same manner as margin contribution to profit of other related party service providers, as they are ultimately still held by the fund to maintain a surplus to fund future expenses.

Finally, there was feedback provided with respect to reporting profit data where there is a loss for the service provider. It was suggested APRA should provide clarification on how to report a non-profit generating expense. APRA will publish a frequently asked question to clarify expectations on reporting under table 4 where there is a loss. In response to this feedback, APRA will also work with industry working group on drafting notes to include on how negative amounts may be interpreted.

One submission also noted that business profitability is cyclical and there are reasonable times when parts or all of the business might record a loss or be more supported by its connected entities than others. The submission raised concerns that in these scenarios, reporting under SRS 332.0 may not be meaningful, and could lead to unproductive conversations, unfounded misunderstandings and criticisms. Recognising that there may be a period of time in which there is a loss to the related parties, followed by a period of time in which the losses are recouped, APRA will consider the inclusion of a multi-year metric as more data becomes available.

With addition of the above, APRA will publish the total expense margin contribution to related party service providers as outlined in the publication proposals. APRA’s view is that given the lack of transparency by RSE licensees traditionally in this area, there is a high public interest in making the data public to ensure there is better transparency on these margins that potentially reduce financial outcomes for members. This issue was highlighted in 2018 by both the Productivity and Royal Commissions and APRA intends to continue to mature and evolve the transparency of reporting to industry.

Summary of key feedback and APRA’s response: Proposals on publication and confidentiality of detailed asset allocation characteristics

While APRA did not include any specific proposals to publish data on detailed asset class characteristics, APRA sought feedback on any benefits or detriment which would arise from the publication of fund level and/or investment option level data on investments by the detailed asset class characteristics if APRA were to release it in the future. Submissions raised the following concerns around potential detriment:

Whole of fund data

Feedback for this proposal was generally positive, with one common concern raised in the written submissions in relation to the publication of detailed characteristics data for unlisted asset categories where there are limited, or single, assets in a particular category, especially infrastructure assets.

Submission feedback outlined that publication of data with respect to these categories would enable third parties to have access to, or to be able to derive, the valuation of specific unlisted assets. This is sensitive commercial information, the publication of which could detrimentally affect the trustee’s ability to optimise management of the asset, including being able to obtain a fair price on part or full disposal.

The concern relates to the marketplace being able to form insight into portfolio carrying values of individual assets, which could place the fund at an information disadvantage, particularly when looking to transact on that asset.

Some submissions recommended that, with respect to unlisted assets, a policy position should be adopted to publish the market values only at the asset class level, to avoid potentially disclosing market sensitive information to the detriment of members. Alternatively, any publication of the asset class classification for unlisted assets at the fund level may need to be lagged significantly longer than 90 days.

APRA intends to make the whole of fund data on investments by detailed asset class characteristics for the asset sectors non-confidential at a future stage, however will amend the position to make the fund level data non confidential at least 365 days after the reference period.

Investment option level data

APRA sought feedback on the proposal to determine that the option level data on investments by detailed asset class characteristics for these asset sectors be non-confidential, with potential for future publication at the option level.

Some submissions recommended that, with respect to unlisted assets, APRA should publish values at the investment option level only at the asset class level, with no further breakdown of the detailed asset class characteristics to avoid potentially disclosing market sensitive information to the detriment of members.

Other submissions raised concerns that publishing detailed asset class characteristics at the option level could reveal proprietary information about the investment strategy.

APRA will not make data on investments by detailed asset class characteristics for the additional asset sectors non-confidential at the investment option level at this time.

Appendix 2 – summary of final positions

Appendix 3 – Proposed change to ‘promoter’ definition
 

APRA seeks feedback on APRA’s proposal to update the definition of ‘Promoter (service provider type)’ under Reporting Standard SRS 101.0 Definitions for Superannuation Data Collections, including introducing a new definition for ‘Promoter arrangements).

Current definition:

Proposed update:

Attachments
 

Attachment A 

Attachment B

Attachment C

Attachment D