APRA concerned over conflict compliance

07-Aug-2015

By Wouter Klijn

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The Australian Prudential Regulation Authority (APRA) has expressed concerns over the level of compliance by superannuation funds in relation to managing conflicts of interest, stating that some funds still had an ‘immature’ framework for dealing with conflicts.

The regulator recently concluded a thematic review of compliance with SPS 521, which lays out the requirements for proper conflict management.

It found that of the 37 super entities reviewed, still a third had a conflicts management framework (CMF) that was assessed as either vulnerable or weak.

“Those Registrable Superannuation Entities (RSEs) licensees with a less robust risk culture and risk management framework (RMF) tended to adopt a more minimalist approach to implementing the prudential requirements, designed simply to comply with, rather than meet the spirit and intent of, the requirements,” APRA wrote in its ‘Insights Issue’ publication on Friday.

“This compliance-driven approach tended to result in an immature CMF, an overly narrow view on what may be relevant interests and duties and a reactive approach to dealing with conflicts, rather than a process which ensures there is regular and appropriate prior consideration of potential conflicts and circumstances that give rise to a conflict.

“At times, a narrow interpretation of conflicts management was observed, where the focus centred only on the directors and there was little evidence of consideration of conflicts beyond those individuals,” APRA said.

APRA found examples where the RSE licensee had an association with a service provider, including investment managers and administrators, but where the framework did not extend to identifying potential conflicts between these providers and individuals within the organisation other than directors or senior management.

In some cases the conflict identification process relied solely on self-identification with no independent review undertaken by the risk function to ensure that the disclosure was complete and adequate.

“The review highlighted that there is a wide range of practice in relation to conflicts management across the superannuation industry,” the regulator said.

“The review indicates that implementation of the requirements is still in its early stages and further steps need to be taken by many RSE licensees to improve their conflicts management practices to meet the requirements of the prudential standard.

“An on-going challenge is ensuring that the CMF is embedded within the risk management framework, and appropriately understood and applied by all those involved in the RSE licensee’s operations.

“Regular review by the board and management of the content of registers, and proactive consideration of and response to those conflicts that are identified is a good way to evidence that the organisation is committed to robust conflicts management,” APRA said.

The regulator will now write a letter to all RSE reminding them of their responsibilities.

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