The Australian superannuation industry believes the costs involved in implementing the new Australian Prudential Regulation Authority (APRA) Reporting requirements as part of the Stronger Super Legislation cannot be justified. Furthermore, the task has been undertaken as a purely tactical data collection exercise and in no way has improved internal management of funds.
It has also been of limited benefit to the member. Those are the key findings of our recent APRA Reporting Survey.
The survey, which included responses from large retail funds and industry funds and respondents from finance managers charged with submitting forms through to IT managers responsible for delivering the data, has identified 5 main themes:
- No-one thinks the cost and levy on members is justifiable
- Most RSEs see their implementation as tactical in nature.
- Most are not leveraging the data for other purposes
- The biggest challenge has been understanding the requirements (and the changing nature over time), although sourcing Insurance data has also been tricky.
- There is still some work to be done to meet the annual reporting requirements for FY14-15
The cost and levy on members is not justifiable
While just over a third of respondents “sat on the fence” when it came to answering the question ‘do the benefits of the legislation justify the cost of compliance and the additional levy charged to members?’, not one of the submissions agree that the costs are justifiable, with a quarter of people feeling strongly about it. It is not surprising when the costs involved are analysed. Implementation costs vary wildly, but a quarter of respondents are spending between A$5m and A$20m on once-off implementation activities and more than A$1m per annum to maintain compliance.
Most RSEs see their implementation as tactical in nature and are not leveraging the data for other purposes
The costs involved are made harder to defend when the limited re-use of the data collected is taken into consideration. Two thirds of respondents stated that their APRA reporting implementations were purely tactical in nature with almost 90% stating that they were not using the data for any purpose other than to comply with the APRA submission requirements. This implies that the task off compliance is being seen as a stand-alone cost of operating rather than a potential opportunity to use the data gathered for better insight.
Shoreline’s view is that, while collecting this information is driven by a regulatory need, much of the data required may have significant value within the organisation. “For instance, data on underlying investments (particularly those housed within opaque and often complex investment vehicles), provides valuable information to the Trustees. The RSE should actively consider how this information may be re-purposed for internal consumption”, states Bruce Russell, Director1.
The biggest challenge has been the evolving nature of requirements
APRA’s report specifications and requirements have been in constant refinement over the last 18 months. While many forms have not changed in format, interpretation of their content has evolved through a process of direct consultation and more recently, industry roundtables. The latest form changes were issued in May 2014 and key definitions of requirements are outstanding, such as the definition of a ‘select’ investment option. It should come as no surprise, then, that when asked to rate challenges experienced to-date, the evolving nature of the requirements ranked top of the list with over 80% of respondents stating they found this particular issue challenging or very challenging. However, most of the other options were also rated as challenging, as the graph above shows.
Perhaps surprisingly, sourcing Fund Profit and Loss data was not always rated as easy, with over 30% of respondents finding it a challenge. Similarly the availability of reliable membership information appears to be a challenge for half of respondents, a highly topical issue with the increased focus on member retention and engagement within the industry.
Read a personal story of membership engagement from one of our Senior Consultants, Don Hicks, in July’s Investment Magazine2.
There is still some work to be done to meet the annual reporting requirements for FY14-15
Mostly, the industry appears to be prepared to meet upcoming compliance deadlines. When asked “Is your organisation prepared for the following requirements?” the main outstanding work appears to be providing data for the FY14-15 annual reports, which are:
534.0 Derivative Financial Instruments
535.0 Securities Lending
600.0 Profile and Structure (RSE Licensee)
601.0 Profile and Structure (RSE)
610.0 Membership Profile
610.1 Changes in Membership Profile
Section 29QC requirements also appear to pose some uncertainty. Half of the respondents neither agreed nor disagreed that they were prepared to meet the requirements, suggesting the final requirements are not understood or implementation plans are unclear.
There has clearly been a lot of time and money spent complying with the revised APRA reporting requirements, the value of which appears to be questionable. In Shoreline’s opinion, the industry is missing an opportunity to leverage the work being done for compliance purposes to improve transparency and access to information within their respective organisations. There is still a chance to grasp this opportunity, as tactical implementations are enhanced to become more sustainable over the longer term and the FY14-15 requirements are bought into scope of delivery.
1. “APRA Super Reporting – Turning Lemons into Lemonade”, November 2013.