APRA: RSE licensees show 'common areas of weakness'

The Australian Prudential Regulation Authority (APRA) has issued a letter to all registrable superannuation entity (RSE) licensees sharing the initial observations from its targeted thematic review of the superannuation industry's preparedness for Prudential Standard CPS 190 Recovery and Exit Planning (CPS 190).

For RSE licensees, CPS 190 will come into effect from 1 January 2025 and the letter outlines opportunities for improvements and better practice examples to enhance the super industry's understanding and preparedness to effectively recover or executive an orderly exit in times of stress.

APRA said licensees have a significant responsibility to manage and maintain the safety of the $2.69 trillion in Australian retirement savings that they oversee.

"Ensuring the safety of this money is imperative to members and the Australian financial system. Trustee boards of these RSE licensees need to be well-prepared for events that may impact the financial viability of their RSE businesses and in doing so continue to prioritise their members' best financial interests," the letter said.

CPS 190 requires licensees to contemplate events that may threaten their financial viability, develop plans to ensure they are able to successfully navigate these events, and maintain any capabilities needed to deploy these plans.The review of licensees' preparedness was conducted over H1 2024 and included 16 RSE licensees that managed approximately 42% of APRA-regulated superannuation fund assets as of 30 June 2023.

"While some RSE licensees are well progressed in meeting the minimum requirements of CPS 190, the thematic review identified common areas of weakness," it said.

APRA said improvements are needed in early warning indicators and trigger levels in the trigger framework should be more relevant to RSE licensees' operating environment and risk profiles.

Additionally, APRA said improvements need to be made to enhance preparatory measures to be considered for recovery and exit operation, together with an uplift in capability to reduce execution risk.

Lastly, APRA said proactive communication strategies should be implemented to support the effective execution of recovery and exit plans particularly in periods of stress.

"The review highlights opportunities for improvement and the immediate need for RSE licensees to further invest in building the structures and capabilities to meet the requirements of CPS 190 by 1 January 2025," APRA said.

"As the superannuation industry continues to experience significant growth and therefore impact to members, it is imperative that RSE licensees develop credible recovery and exit plans and ensure an ability to adapt as the environment changes. Robust governance and risk practices are RSE licensees' first and most significant line of defence against the types of scenarios contemplated in CPS 190."

APRA will progress to supervise to CPS 190 from 1 January 2025, including RSE licensees' adherence to the requirements measured against its supervision risk and intensity model.