The Australian Prudential Regulation Authority (APRA) has warned superannuation funds that a single serious accusation of misconduct can cause immense damage to an organisation’s reputation, highlighting the need to be vigilante about risk management.
Suzanne Smith, APRA executive director – superannuation division, said that along with eroding public trust, deterring customers and investors, or attracting financial penalties such as fines was itself a prudential risk.
“APRA’s chief concern when it comes to misconduct, however, is what it says about an institution’s culture, and whether that culture potentially enables or even encourages damaging behaviour,” Smith said.
“In recent years, APRA has stepped up its focus on transforming governance, culture, remuneration and accountability across our regulated entities with a view to rectifying sub-standard industry practices.
“While general organisational culture is of interest, our primary focus is risk culture, which refers, in simple terms, to an entity’s attitude to risk management.
“This stronger emphasis on risk culture has seen APRA take enforcement action against several of the country’s biggest banks and insurers, including capital and liquidity penalties and enforceable undertakings.”
As with banking and insurance, Smith said the superannuation sector also had more work to do.
“Building on the risk governance self-assessments of 2018/19 and the recent Supervisory Risk and Intensity (SRI) assessments undertaken by APRA supervisors, we have found superannuation funds present a number of concerns,” Smith said.
“These include instances of immature risk cultures, an approach to risk management that has not kept pace with the growth and maturity of the organisation, sub-optimal board compositions including the lack of specific trustee capabilities, and conflicts of interest.”
Smith said in organisations that were immature on decision-making were likely to see little evidence of challenge being encouraged or well-received.
“On a related note: if someone in your entity contacts APRA or the Australian Securities and Investments Commission (ASIC) as a whistle-blower, it’s worth considering why they felt unable or unsafe to do so through your own internal complaints-handling processes,” Smith said.