APRA confirms cash ain’t cash for some super funds

The Australian Prudential Regulation Authority has written to Australia’s major superannuation funds telling them that “cash” investment options better be what they say they are – “cash”.

The regulator has used a letter to fund trustees to note that a recent targeted desktop review had “identified examples in the industry where ‘cash’ investment options appear to include exposure to underlying investments that would not generally be considered cash or cash-like in nature”.

The APRA letter would seem to underscore complaints by some financial planners that some industry superannuation funds do not appropriately label their investment options. The letter noted that some funds were describing asset-backed and mortgage-backed securities as cash as well as commercial bonds and hybrid debt instruments.

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The APRA letter warned that the cash description needed to be what was reasonably understood by a member, stating: “under the reasonable expectations principles as set out in SPS 530 Investment Governance APRA considers that a superannuation fund member would understand that exposure to a ‘cash’ investment option or product will be readily accessible (for withdrawal or transfer) without change in value”.

It said this aligned with APRA’s definition of cash under Superannuation Reporting Standard (SRS) 530 Investments which states that “cash” represents cash on hand and demand deposits, as well as cash equivalents.

“Cash equivalents represent short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value,” the regulator said.

It said that assets that APRA had observed forming part of cash options underlying investments included asset-backed and mortgage-backed securities, commercial bonds and hybrid debt instruments, credit-default swaps, loans and other credit instruments.

“These assets do not typically exhibit the characteristics necessary to be considered as cash or cash equivalent,” it said.

APRA said there were also exposures noted to cash enhanced vehicles without sufficient policy guidance as to the permitted holdings of the vehicles.

“APRA further notes that there were a number of cash options where the investment policy framework permitted investments in non-cash like assets although there were no material exposures observed,” it said.

APRA said it would continue monitoring superannuation funds and expected trustees to review their investment policies.

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Gee these guys are right on to it aren't they. How many years has this been happening? So long it was actually a question for me in a finance exam at uni 20 YEARS AGO!

the article infers industry funds are the focus on APRA’s concerns re cash options being true to label cash. I understand that’s not the case and a number of retail funds would need to consider their cash options?

More generally, is this an indication that as a consequence of the Royal Commission, APRA has suddenly become "well endowed".

10 years ago, it was MBS's that were given AAA Ratings the same as Cash, that led to the GFC. How is is it possible that this still continues? Any super fund that believes a debt instrument is Cash like should be banned from taking any new contributions as well as name and shamed! Not to mention the investment committees of these funds should be banned for life from allowing this practice to continue.

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