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AIST proposes crisis preparedness standards to APRA

The Australian Institute of Superannuation Trustees has acknowledged the difficulty of implementing industry-wide rulesets and has released its future crisis contingency planning recommendations to APRA.

In its submission, the AIST said the balance of risks and credible recovery options for each sector and entity would vary but overall, the organisation saw merit in the industry receiving tailored guidance from APRA.

Though notably, as a representative body for the profit-to-member superannuation sector, the AIST submission was limited to matters that regarded its own member funds.

The organisation praised the profit-to-member superannuation fund model for its governance system.

AIST said: "This model of governance removes any conflict between the fiduciary duty of trustees to always act in the best interests of members and the motivation to draw a profit for the benefit of shareholders with a financial stake, as the latter does not exist."

"This ensures that any collection and use of revenue is done with the guiding principle that the money first and foremost belongs to members, and any use of that money must be to their benefit."

The statement continued: "P2M funds have performed strongly and weathered several significant financial market shocks and periods of market volatility without major financial detriment demonstrates that the model is sound."

Nonetheless, there were some stark risks to profit to member trustees.

The lack of capital within trustee companies prior to the legislative necessitation of trustee capital reserves being held separately to funds indicated that no existential threat to trustees' financial resilience existed.

However, whereas once class actions were rare under prior legislation as fund assets were preserved, now a pool of available capital in the trustee risks litigation funders chasing actions.

AIST said that through discussions it had within the superannuation legal community, it understood that litigators generally wouldn't bother to peruse payouts below $30 million. Therefore, the quantum of the threat to super funds couldn't be understated.

On prudential standards for reserving policies, the AIST stated any plans must include a trigger framework for the early identification and monitoring of stress. The organisation also prescribed that governance arrangements monitored triggers and had timely activations of contingency plans.

"The nature of the risks to profit to member trustees that would constitute a financial crisis are such that a soundly and prudently run trustee would have ample advance warning of an impending trigger event," AIST said.

Read more: AISTAPRAAustralian Institute of Superannuation Trustees