The Australian Prudential Regulation Authority (APRA) has growing concerns about superannuation trustees' spending behaviour after observing deficient practices and questionable expenditure in some areas, according to APRA deputy chair Margaret Cole.
In a speech yesterday to the AFR Super & Wealth Summit 2024, Ms Cole said, “Fund expenditure will be reviewed and scrutinised with intensity. It has become a priority frontier in APRA’s supervision agenda.”
Best financial interests duty
She said that the focus on fund expenditure has sharpened since the introduction of the Your Future Your Super reforms in July 2021. Ms Cole said, “Central to the reforms is the best financial interests duty (BFID) which replaced what had previously been the best interests duty. The addition of just one word had significant implications for the industry. The new duty explicitly required trustees to put the financial interests of fund members at the centre of every expenditure decision and all operational decisions as well.”
She added, “The intention of the revamped best financial interests duty was crystal clear: trustees could no longer justify expenditure decisions based on non-financial benefits to members. Trustees’ fiduciary duties were intrinsically linked to members’ best financial interests.”
Expansion in data collection
APRA has expanded the superannuation data that it collects, representing a significant leap forward in the availability, visibility, granularity, and comparability of trustee expenses information.
APRA’s data collection now includes breakdowns of expenses for the whole industry and for each fund, by more detailed categories such as administration, advice, member services, marketing, board director remuneration, and corporate overheads such as travel and entertainment.
“We also collect data on the recipients of payments made by each fund to industrial bodies and related parties, in relation to promotion, marketing or sponsorship expenses and any political donations,” Ms Cole said.
APRA will publish this information at both industry aggregate and fund level for transparency of how trustees spend and invest members’ money. APRA stands ready to publish its inaugural expenses data collection today.
In a communication to trustees last week, APRA said that it would be looking out for expenses where member benefit is not immediately evident or may not be reasonably justified.
Areas targeted
The areas APRA will target initially include discretionary expenditure categories such as travel, entertainment and conferences. APRA will also focus on:
-
relative and absolute size outliers, including consideration of impact to members; and
-
particular types of payees and payments where benefit to members is not immediately apparent.
“Where deficiencies are identified, APRA will require that trustees make the necessary improvements, which may include APRA enforcing rectification measures where warranted," Ms Cole said.