AIST Governance Group

APRA Prudential Standards –

Industry Scorecard 12 months on

15 October 2014

Stephen Glenfield, General ManagerSouth-West Region

ORFR (SPS 114) Trustee Practices/Observations

• Adopting the minimum 0.25% ORFR Target Amount

• Clearly defined definitions of Operational Risk Events

• Well defined material trigger events

• Investing the ORFR target amount monies in an investment strategy matched to the majority of the Fund assets

ORFR (SPS 114) Trustee Practices/Observations

Watch out for:

• Non-operational risks included in the determination of the ORFR Target amount

• Lack of availability Operational Risk Data

Defined Benefit Matters (SPS 160)Trustee Practices/Observations

• Shortfall limits – a solid rationale and regular monitoring

• Restoration Plans

• Forward planning around reduced timeframes for obtaining an actuarial report

Risk Management (SPS 220)Trustee Practices/Observations

• Clearly articulated Risk Appetite Statement (RAS)

• RAS aligns with strategic direction

• Measurable risk tolerances

• Risk culture driven from the top and evidenced

• Effective and regular reporting on risk

Risk Management (SPS 220)Trustee Practices/Observations

Watch out for:

• Risk management vs compliance

• Meaningful & measureable risk tolerances

• Business Plan doesn’t align with RAS

Outsourcing (SPS 231) Trustee Practices/Observations

• Outsourcing policies reflect practices in place

• Alignment of outsourcing risks and risk management framework

• Early consultation with APRA

Outsourcing (SPS 231) Trustee Practices/Observations

Watch out for:

• Outsourcing policies replicate/quote SPS 231

Insurance in Superannuation (SPS 250)Trustee Practices/Observations

• Rigour around tender and due diligence processes

• Thought and research in development of benefit design

Insurance in Superannuation (SPS 250)Trustee Practices/Observations

Watch out for:

• Insurance Management Framework documentation is too high level

• Lack of focus on data management

Business Continuity Management (SPS 232)Trustee Practices/Observations

Watch out for:

• Business Continuity Management Policy lacks detail

• Business Impact Analysis ad-hoc and lacks structure

• Business Continuity Plan lacks clarity

• Testing and Reporting ad-hoc

Governance (SPS 510) Trustee Practices/Observations

• Governance policy addresses board renewal and board performance

• Remuneration Policy aligns remuneration and risk management

• Board Audit Committee is in place

• Trustee has or uses an appropriately resourced and skilled internal audit function

• Trustee owns the strategic plan for Fund

Governance (SPS 510) Trustee Practices/Observations

• Risk not adequately covered by the audit committee (and no separate risk committee)

• Adequacy of renewal policy

• Board skill set

• Not letting management manage

Watch out for:

Conflicts of Interest (SPS 521)Trustee Practices/Observations

• Built on a robust Risk Management Framework (RMF) and risk culture

• Tackle actual, potential and perceived conflicts

• Disclose all types of relevant interests and duties

• Identification and management of conflicts integrated within the broader Conflicts Management Framework and the RMF

Conflicts of Interest (SPS 521) Trustee Practices/Observations

• No conflicts identified as untenable

• Vision tends to be narrow – little regard for perceptions

• RSE licensee complexity not picked up in the Conflicts Management Framework

• Registers outdated, incomplete and lacking coverage

• High materiality thresholds

Watch out for:

Investment Governance (SPS 530)Trustee Practices/Observations

• Strong due diligence attaching to the selection of investments

• Diligent monitoring of investments/performance

• Periodic review of investment objectives and investment strategy

• A comprehensive stress testing programme and a liquidity management plan are in place and being given effect to

Some reminders from APRA

• APRA’s Guidance Material provides examples of better practice

• APRA FAQs are a good reference to APRA’s interpretation of Prudential Standards

• APRA speeches provide industry with messages of APRA’s expectations and examples of better governance

Discussion