AUSTRALIANAUSTRALIANSUPERANNUATION SUMMITSUPERANNUATION SUMMIT

“Progress Towards a Sounder “Progress Towards a Sounder Superannuation Industry”Superannuation Industry”

Charles LittrellCharles Littrell

Executive General ManagerExecutive General Manager

Australian Prudential Regulation AuthorityAustralian Prudential Regulation Authority

28 May 0328 May 03

2

• Minimise Regulated Entity Failure to pay protected creditors

• Super fund members, Depositors, Policyholders

• Collectively, “Beneficiaries”• Not Shareholders

APRA’s MissionAPRA’s Mission

3

• Failures are statistically certain• Zero Systemic Failures• 99.9% PER, 99.95% MPR• Competitiveness, Efficiency, Innovation,

Contestability• Budget, Use of State Power

Defining the MissionDefining the Mission

4

• Defined Benefit: Protect Promised Payments

• Accumulation: “Reasonable” Outcome• All Funds: Appropriate Trustee Behaviour• Bad Luck vs. Bad Trustees

APRA’s Mission in APRA’s Mission in SuperannuationSuperannuation

5

• SIS and Other Statutes: Minimum Standard• Handling Risk: Core Standard

– Current Good Practice– Future Licensing Key

• Handling Conflicts: Increasingly a core standard─ Vs. Employers– Vs. Union– Vs. Retail Sponsor– Fund Members are Not Customers!

Appropriate Trustee Appropriate Trustee BehaviourBehaviour

6

• Becoming “Better”• Becoming “Tougher”• Supporting Government Reform• Data, Analysis, Research

Major APRA Major APRA Superannuation Superannuation InitiativesInitiatives

7

PROBABILITY RATING

IMPACT RATING

LOW MEDIUM HIGH EXTREME

Extreme

High

Medium

Low

250250 37503750 1875018750 5625056250

5050 750750

151511

225022507507501501501010

112501125037503750

7575 225225 4

Becoming Better: Becoming Better: Consistent Risk Consistent Risk AssessmentAssessment

8

Becoming Tougher: Becoming Tougher: Consistent Supervisory Consistent Supervisory ResponseResponse

LOW

LOW

MEDIUM

HIGH

MEDIUM

HIGH

EXTREME

EEXXTTRREEMMEE

NORMAL

OVERSIGHT

MANDATED

IMPROVEMENT

RESTRUCTURE

RESTRUCTURE

LLAARRGGEE

NORMAL

OVERSIGHT

MANDATED

IMPROVEMENT

RESTRUCTURE

MMEEDDIIUUMM

NORMAL

NORMAL

OVERSIGHT

MANDATED

IMPROVEMENT

RESTRUCTURE

LLOOWW

NORMAL

NORMAL

MANDATED

IMPROVEMENT

RESTRUCTURE

IMPACT

RISKRISK

II

MM

PP

AA

CC

TT

9

• Trustee Licensing, Fund Registration• Risk Management Strategies and Plans

– Fraud/Criminality– Investment– Operational/Outsourcing– Governance/Conflicts

• Key Licensing Issues– Sound Risk Management Policies– Followed in Practice– Proven to APRA– Tiered vs. Complexity, Equal

Representation

Supporting Supporting Government Government Prudential ReformPrudential Reform

10

• Data Improvements from June 2004• Analysis and Research

– Prudential Focus– Outlier Analysis– Size/Sector Research– Cost Research– Detailed Onsite Analysis

• Research Direction– Understanding Industry Economics– Developing Early Warning Signals– Information Pressure on Poor Conflict Management

Superannuation Data, Superannuation Data, Analysis, and Analysis, and ResearchResearch

11

• Licensing and Risk Management the Core Tools• More performance/data focus vs. statutory focus• More interventionist• Continued focus on misconduct• Increased focus on conflict of interest

APRA Directions in APRA Directions in SuperannuationSuperannuation

12

• Reasonably safe from misconduct• Not necessarily safe from conflict• Licensing will help in both areas• New APRA approach will also help

SummarySummary

13

AUSTRALIANAUSTRALIANSUPERANNUATION SUMMITSUPERANNUATION SUMMIT

“Progress Towards a Sounder “Progress Towards a Sounder Superannuation Industry”Superannuation Industry”

Charles LittrellCharles Littrell

Executive General ManagerExecutive General Manager

Australian Prudential Regulation AuthorityAustralian Prudential Regulation Authority

28 May 0328 May 03