APRA’s clear message: more regulation is on the way

6 min read
6 min read

In recent months, APRA has published two information papers which contain important messages for Trustees on the topics of governance, risk management and compliance. The first paper relates to APRA’s review of the superannuation prudential framework, and the second to APRA’s report on governance, culture and accountability self-assessments. The messages are clear.

Firstly, developing and maintaining an efficient and effective regulatory change capability is crucial in order to respond to ongoing regulatory change. Super funds are facing increasing compliance requirements, more assertive regulators and increasing demands from members and stakeholders. Numerous surveys have identified the impact of regulatory change, whether cost, or unintended consequences, as a top risk. At the same time competition is increasing, markets are transforming, and digitalisation marches on. For the superannuation industry this has been ‘the norm’ for a long time and in the long shadow of the Royal Commission, the pressure has only increased. Therefore, having the capacity to respond to regulatory change—not just devoting resources to addressing the latest requirement—must be a core, and strong, competency of any fund.

Secondly, building and maintaining trust is an ongoing exercise crucial to success. One way to build trust is to have strong governance and risk management frameworks which promote the kind of behaviour that generates trust. Making good strategic decisions, and doing so in a transparent manner, helps to drive the right culture internally and promote trust externally.

Prudential Framework Review

APRA’s Review into the Superannuation Prudential Framework was released in April 2019. One of the objectives of the review was to determine if the compliance-based approaches to governance and risk management seen in the pre-prudential standard era, had been replaced with a greater focus on processes and practices in the best interests of members. That is, if the industry had moved from seeing risk management as a compliance exercise, to seeing risk management as a strategic exercise.

APRA determined that the Framework had largely met its objectives although it stated that the “uplift in industry practices has not kept pace with the heightened expectations of members, regulators and the broader community in all areas”.

There are also some signals of potentially greater alignment between the superannuation standards and those which apply to insurers and banks. We have already seen this in the information security space. There is a reasonable chance of more to follow. For example, the requirement to have an independent chief risk officer (CRO) function, a dedicated and distinct risk committee and for boards to form views on risk culture. Many funds already do these things because they recognise them as good practice.

In the paper, APRA identified a range of changes to the prudential standards, albeit at a high level. Reviewing these is time well spent. The message is all too familiar: yet more regulatory change is on the way. Funds should therefore make sure they have the capability to respond to regulatory change both now and into the future. This means having the right resources, and robust systems and governance structures in place. There is almost always pain in responding to new requirements but ensuring that frameworks are in a strong base-state means that responding to changes can be done with maximum efficiency. Many funds are likely adept at this but taking stock and building out regulatory response capabilities is more important than ever.

Governance, culture and accountability self-assessments

APRA’s other paper, which is more thematic in nature, discusses the findings of the self-assessments undertaken by a range of banks, insurers and super funds into their governance, accountability and culture practices. These self-assessments were undertaken at the request of APRA and based on the CBA Report from 2018. In APRA’s view, the self-assessments highlighted four key themes:

  • Non-financial risk management requires improvement
  • Accountabilities are not always clear, cascaded and effectively enforced
  • Acknowledged weaknesses are well-known and some have been long-standing
  • Risk culture is not well understood, and therefore may not be reinforcing the desired behaviours

These issues all relate to how an organisation promotes trust with its customers and other stakeholders. The discussion on trust has been somewhat subsumed by culture in recent months. Whilst culture is, among other things, one of the drivers of behaviour that generates trust, trust is the objective. These four themes are therefore worth contemplating in depth. Trust underpins the existence of the superannuation system. Without it all participants—members, governments, regulators and others—would lack the confidence to continue support the system.

Building trust through strong governance and risk management outcomes

To build trust, we must treat members honestly and fairly and act in their best interests. But how does a fund do this? One way to create behaviour which generates trust is to ensure strong governance and risk management outcomes. This means transparent decision-making, free of conflicts; and effective risk reduction through a laser-like focus on achieving strategic objectives. It is transparency that generates trust because stakeholders see that good decisions are being made.

Also critical to effective governance is the interaction between the board and management. The board needs to ensure it has the right balance between challenging management’s strategy implementation and supporting them to achieve their goals, and that it is receiving the right information from management and advisers. A broad range, and the right mix, of skills and experience is essential if the board is to operate effectively as the needs of funds and their members evolve and become more sophisticated.

Funds that are likely to succeed are also those that undertake a robust and honest assessment of their existing risk governance. Monitoring risks on a regular basis to ensure that environmental changes are incorporated into strategy and risk management practices is therefore a must. Regular questions that could be asked include: has anything changed in the environment that impacts on our strategy? Or have our members expectations changed?

Efforts to measure risk culture on a regular basis are also needed to ensure that all staff have a reasonable awareness of the risks associated with their role and areas of responsibility and to identify improvements required in risk governance and/or education of staff.

While super funds have generally not been guilty of poor (read: excessive) remuneration practices, as consolidation creates increasingly larger businesses, care needs to be taken to ensure employees are rewarded fairly and not excessively. This is yet another area where good risk management can help to build trust.

Despite so much uncertainty in the world, we can count on more regulatory change and the need to constantly maintain the trust of our members (and other stakeholders). Regardless of any not-for-profit purposes, the pervasiveness of the trust structure, or the long-term nature of retirement benefits generally, the super industry is expected to operate as if it were competing in a global marketplace. The expectations for governance, professionalism, and sophistication of operations are always increasing.

Picture of By Daniel Frank

By Daniel Frank

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Carmen Beverley-Smith

Executive Director - Superannuation, Life & Private Health Insurance, APRA

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Carmen joined APRA in March 2023 and holds the role of Executive Director, Life and Private Health Insurance and Superannuation.  

She has had an esteemed career in financial services, spanning over 25 years. She has held diverse leadership roles at Westpac and Commonwealth Bank of Australia, including across risk, transformation and change, product and portfolio development, and sales and service. 

Prior to joining APRA, she held the role of General Manager, Risk Transformation Delivery Integration at Westpac. This involved leading the group-wide implementation of a suite of solutions to uplift risk management capability and develop data, analytics and reporting. 

Carmen leads with a values-driven approach and a particular interest in developing and mentoring talent. 

She holds a Bachelor of Commerce and Accounting, is a certified Chartered Accountant and a Graduate of the Australian Institute of Company Directors. 

Amy C. Edmondson

Novartis Professor of Leadership and Management, Harvard Business School

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Amy C. Edmondson is the Novartis Professor of Leadership and Management at the Harvard Business School, a chair established to support the study of human interactions that lead to the creation of successful enterprises that contribute to the betterment of society.

Edmondson has been recognized by the biannual Thinkers50 global ranking of management thinkers since 2011, and most recently was ranked #1 in 2021 and 2023; she also received that organization’s Breakthrough Idea Award in 2019, and Talent Award in 2017.  She studies teaming, psychological safety, and organisational learning, and her articles have been published in numerous academic and management outlets, including Administrative Science Quarterly, Academy of Management Journal, Harvard Business Review and California Management Review. Her 2019 book, The Fearless Organization: Creating Psychological Safety in the Workplace for Learning, Innovation and Growth (Wiley), has been translated into 15 languages. Her prior books – Teaming: How organizations learn, innovate and compete in the knowledge economy (Jossey-Bass, 2012), Teaming to Innovate (Jossey-Bass, 2013) and Extreme Teaming (Emerald, 2017) – explore teamwork in dynamic organisational environments. In Building the future: Big teaming for audacious innovation (Berrett-Koehler, 2016), she examines the challenges and opportunities of teaming across industries to build smart cities. 

Edmondson’s latest book, Right Kind of Wrong (Atria), builds on her prior work on psychological safety and teaming to provide a framework for thinking about, discussing, and practicing the science of failing well. First published in the US and the UK in September, 2023, the book is due to be translated into 24 additional languages, and was selected for the Financial Times and Schroders Best Business Book of the Year award.

Before her academic career, she was Director of Research at Pecos River Learning Centers, where she worked on transformational change in large companies. In the early 1980s, she worked as Chief Engineer for architect/inventor Buckminster Fuller, and her book A Fuller Explanation: The Synergetic Geometry of R. Buckminster Fuller (Birkauser Boston, 1987) clarifies Fuller’s mathematical contributions for a non-technical audience. Edmondson received her PhD in organisational behavior, AM in psychology, and AB in engineering and design from Harvard University.

 

Daniel Mulino MP

Assistant Treasurer and Minister for Financial Services

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Born in Brindisi, Italy, Daniel was a young child when he moved with his family to Australia. He grew up in Canberra and completed his first degrees – arts and law – at the ANU. He then completed a Master of Economics (University of Sydney) and a PhD in economics from Yale.

He lectured at Monash University, was an economic adviser in the Gillard government and was a Victorian MP from 2014 to 2018. As Parliamentary Secretary to the Treasurer of Victoria, Daniel helped deliver major infrastructure projects and developed innovative financing structures for community projects.

In 2018 he was preselected for the new federal seat of Fraser and became its first MP at the 2019 election, re-elected in 2022 and 2025. From 2022 to 2025, Daniel was chair of the House of Representatives’ Standing Economics Committee in which he chaired inquiries; economic dynamism, competition and business formation and insurers’ responses to 2022 major floods claims.

In 2025, he became the Assistant Treasurer and Minister for Financial Services.

In August 2022, Daniel published ‘Safety Net: The Future of Welfare in Australia’, which aims to explore the ways in which an insurance approach can improve the effectiveness of government service delivery.