2. FSI recommendation
and APRA’s future area
of focus
The final Report of the Financial Systems
Inquiry recommended that the trustee
boards of public offer super funds should
be required to have majority independent
directors. In addition, directors should be
required to acknowledge/review any
disclosures of conflicts of interest.
More recently, APRA has indicated that
governance in superannuation is an area of
future focus.
APRA’s thematic review of management of
conflicts of interest indicated insufficient
training for directors on conflicts
management requirements and lack of
consideration or declaration of conflicts in
board or committee meetings.
APRA has encouraged trustee boards of
super funds to have in place robust director
appointment and board renewal processes
which ensure that boards have the breadth
of capability needed to meet their
obligations to members into the future.
How effective is your governance structure?
In the superannuation industry, effective
governance serves as a mechanism to
safeguard the interests of members. It is
likely to be a matter of time before the
Government will mandate for a certain
percentage of trustee boards to be
independent.
In order to remain on the front foot of
regulatory change, it is timely for public
offer super funds to consider the
composition of the trustee board, it’s
performance, and governance structures in
place for management of conflicts.
Our view
Key considerations for robust governance
structures to manage conflicts of interest
In addition to the requirements in SPS 510, super funds
should consider the following:
• Does your definition of conflicts include perceived and
possible conflicts as well as actual conflicts?
• What types of conflicts are disclosed and considered (e.g.
are conflicts considered at the RSE licensee level?)
• How are services of related entities measured and
monitored?
• How are declaration of conflicts communicated to the
board and relevant committees?
• What mechanisms and processes are in place to deal with
conflicts of interest?
• To what extent is your conflict management framework
embedded throughout the organisation?
‘Requiring a majority of independent
directors, with an independent chair, would
strengthen the governance of superannuation
funds.’
Financial Systems Inquiry, Final Report
November 2014
What we see as the key components for
assessing board performance
• Awareness of fiduciary and statutory requirements as a
Trustee board, and a clearly articulated vision. This
includes clarity of role as a trustee board.
• The quality of board processes such as reporting and
decision-making.
• Board composition, the selection and induction processes.
• Engagement with service provider(s) to ensure outsourced
arrangements are well supported and able to meet the
needs of its members and the Trustee’s compliance
expectations.
• Board dynamics comprising trust, candour and respect.
What does good governance look like?
Good governance is the foundation for acting in the best
interests of members.
The effectiveness of the governance structure will depend on
the size and operation of your organisation.
As your organisation experiences growth and change a
periodic review of your governance structure will allow you to
determine if your current structure:
• enables the board to focus on strategic objectives and
decisions
• focuses the Board on your organisation’s material risks
within risk appetite parameters
• is sufficiently agile to cater for a change in strategic
direction
• provides sufficient clarity around decision making powers
and accountabilities across the group in order to
streamline decision making
• minimises duplication of effort at management and
committee level(s)
• ensures relevant capabilities required to manage risk and
compliance obligations are appropriately allocated
• is consistent with best practice governance models.
Preparing for APRA surveillance visits
APRA meets with the boards of regulated institutions at
least once a year. In preparing for the visits from APRA,
superannuation funds should consider the following:
• how the Board demonstrates a working knowledge of
APRA’s prudential standards
• does the Board have a good understanding of the
importance of the clear articulation of its risk appetite
• to what extent are directors engaged in their Board work
and how is this demonstrated through their
contributions to discussions.
Remember, the interests of the Board and APRA in prudent
management of the superannuation entity in the interests
of members are aligned.
