APRA’s closer scrutiny on how funds spend members’ money

Superannuation funds have been placed on notice by the Australian Prudential Regulation Authority (APRA) that it will be looking for clearer information around the expenditure and transfer of monies, particularly where related parties are concerned.

APRA has sent a clear message to funds in a new discussion paper in which it has flagged tougher prudential standards around the spending decisions of superannuation funds.

The APRA discussion paper follows on from recent Parliamentary questioning by Government back-benchers about expenditures undertaken by industry funds with respect to television advertising and major sporting sponsorships.

The APRA discussion paper drives home the requirement for superannuation funds to act in the best interests of their members, stating that superannuation fund (RSE) licensees’ business operations are becoming increasingly complex, necessitating investment and spending decisions that, at their core, ultimately support the RSE licensee’s obligation to act in the best interests of beneficiaries.

It then states that APRA “continues to observe the need for improvement in areas of industry practice in relation to the governance and oversight of fund expenditure, including payments to related parties”.

The APRA discussion paper said such practices included “insufficient rigour around decision-making and monitoring in relation to fund expenditure, setting of fees and costs and the use of reserves, and how expenditure decisions are made to secure sound outcomes for members”.

“The combination of inadequately managed processes and oversight, and failure to take timely action (or any action at all) when issues are identified, can lead to costs being incurred that adversely affect outcomes for members,” it said. “Further, inadequately controlled expenditure often indicates broader weaknesses in an RSE licensee’s policies and procedures.”

The discussion paper said that, because of this APRA was proposing to amend the regulatory settings to “require superannuation fund licensees to develop and maintain an expenditure policy that supports rigorous decision-making, monitoring and oversight of expenditure decisions and demonstrates how expenditure is linked to the delivery of cost-effective, sound outcomes”.

“Additionally, where an RSE licensee decides that a certain type or level of expenditure is significant, it will be required to demonstrate that the expenditure has a clear purpose or objective and closely monitor whether or not that expenditure has achieved the intended objectives,” it said.