AUSTRALIAN SUPERANNUATION SUMMIT “Progress Towards a Sounder Superannuation Industry” Charles Littrell Executive General Manager Australian Prudential Regulation Authority 28 May 03

2 Minimise Regulated Entity Failure to pay protected creditors Super fund members, Depositors, Policyholders Collectively, “Beneficiaries” Not Shareholders APRA’s Mission

3 Failures are statistically certain Zero Systemic Failures 99.9% PER, 99.95% MPR Competitiveness, Efficiency, Innovation, Contestability Budget, Use of State Power Defining the Mission

4 Defined Benefit: Protect Promised Payments Accumulation: “Reasonable” Outcome All Funds: Appropriate Trustee Behaviour Bad Luck vs. Bad Trustees APRA’s Mission in Superannuation

5 SIS and Other Statutes: Minimum Standard Handling Risk: Core Standard –Current Good Practice –Future Licensing Key Handling Conflicts: Increasingly a core standard ─Vs. Employers –Vs. Union –Vs. Retail Sponsor –Fund Members are Not Customers! Appropriate Trustee Behaviour

6 Becoming “Better” Becoming “Tougher” Supporting Government Reform Data, Analysis, Research Major APRA Superannuation Initiatives

7 PROBABILITY RATING IMPACT RATING LOWMEDIUMHIGHEXTREME Extreme High Medium Low Becoming Better: Consistent Risk Assessment

8 Becoming Tougher: Consistent Supervisory Response RISK IMPACT

9 Trustee Licensing, Fund Registration Risk Management Strategies and Plans –Fraud/Criminality –Investment –Operational/Outsourcing –Governance/Conflicts Key Licensing Issues –Sound Risk Management Policies –Followed in Practice –Proven to APRA –Tiered vs. Complexity, Equal Representation Supporting Government Prudential Reform

10 Data Improvements from June 2004 Analysis and Research –Prudential Focus –Outlier Analysis –Size/Sector Research –Cost Research –Detailed Onsite Analysis Research Direction –Understanding Industry Economics –Developing Early Warning Signals –Information Pressure on Poor Conflict Management Superannuation Data, Analysis, and Research

11 Licensing and Risk Management the Core Tools More performance/data focus vs. statutory focus More interventionist Continued focus on misconduct Increased focus on conflict of interest APRA Directions in Superannuation

12 Reasonably safe from misconduct Not necessarily safe from conflict Licensing will help in both areas New APRA approach will also help Summary

13 AUSTRALIAN SUPERANNUATION SUMMIT “Progress Towards a Sounder Superannuation Industry” Charles Littrell Executive General Manager Australian Prudential Regulation Authority 28 May 03