While Registrable Superannuation Entities (RSE) have largely stayed under the radar other than for the pesky quarterly performance statistics and shaming on fees, the soon to be imposed remuneration regimes (either CPS511 or FAR – Financial Accountability Regime, depending on the scale of the fund) will well and truly bring them into the supervisory fold.

Following the fallout of the Hayne Royal Commission (see HERE), corporate culture has been cited as a contributing factor to poor risk management practices, misconduct and in turn poor customer/member outcomes.  In a recent speech to ASFA, the peak policy, research and advocacy body for Australia’s superannuation industry, APRA Executive Director Superannuation Division Suzanne Smith identified a number of concerns with the culture of superannuation funds.

Ms Smith specifically called out concerns centred around immature risk cultures, risk management approaches that have not kept pace with the growth and maturity of an organisation, and boards with a lack of specific trustee capabilities and conflicts of interest.

She indicated that APRA will target a number of RSEs in 2022 with a risk culture survey currently being piloted within APRA. The survey will directly question an RSE’s staff across 10 dimensions, being:

1. Leadership

2. Risk appetite and strategy

3. Decision-making and challenge

4. Communications and escalation

5. Risk capabilities

6. Risk governance and controls

7. Responsibility and accountability

8. Performance management and incentives

9. Shared values

10. Risk culture assessment

The speech provides supporting detail around what is meant by each dimension, what constitutes good practice and the types of behaviours giving rise to concern.

This is a very interesting development. Trustees will receive an independent source of culture assessment to compare with the engagement survey data provided by management. In addition, the standardised methodology should permit RSE comparison. Once established, it is not difficult to see APRA rolling out the method to other regulated entities.

On performance management and incentives APRA notes:

“At its core, this dimension is about ensuring good risk management behaviour is rewarded and poor risk behaviour faces proportionate consequences.

Organisations that are mature on this dimension will generally be rewarding “doing the right thing”, including non-financial dimensions such as good risk management.

They will also penalise poor risk behaviour, even when that behaviour has contributed to a good financial outcome. Signs of a weak risk culture in this area include performance objectives that don’t reference risk management or risk culture, or hiring and promotion decisions that fail to incentivise staff to demonstrate sound risk management behaviours.”

The full speech can be found HERE.

© Guerdon Associates 2024 Back to all articles