APRA flexes fresh powers, zeros in on trustees

The Australian Prudential Regulation Authority (APRA) has released a package of proposals to strengthen trustee investment governance and better protect members' retirement savings.

APRA said the reforms are the next phase of its multi-year focus on lifting investment governance standards across the superannuation industry, particularly within the platform trustee segment.

In the consultation paper, APRA said it has "elevated concerns" around the platform segment.

"Platform trustees often oversee large and complex investment menus, rely on adviser and promoter-led distribution, and allow members considerable discretion to concentrate their savings in individual investments," it said.

"These features can make investments harder to oversee, create conflicts that may influence trustee decisions and increase the risk of severe loss where investments perform poorly or fail.

"APRA's supervisory work has found that these heightened risks have not always been matched by sufficiently strong governance practices. Weaknesses include inadequate scrutiny when investments are onboarded, ineffective monitoring and remediation, inconsistent enforcement of investment limits, poor management of conflicts involving third parties, and insufficient capability and resources to oversee complex investment menus."

The proposal would strengthen requirements across eight key areas of risk and build on existing obligations for trustees.

Three new safeguards would require trustees to set and enforce member-level investment limits for higher-risk investments; strengthen the management of investment-related conflicts; and ensure their investment oversight capabilities and resources are commensurate with the size and complexity of their investment menus.

APRA is also proposing five changes to codify and strengthen existing expectations for investment onboarding, monitoring, remediation, valuations and accountability.

APRA said it will also continue to focus its supervisory intensity on platform trustees. As part of this, APRA is considering whether certain trustee remuneration requirements that currently apply to large trustees should be applied to complex trustees of all sizes to appropriately incentivise effective and prudent governance.

APRA deputy chair David Bradbury said sound investment governance and clear trustee accountability is fundamental to protecting members' retirement savings.

"Trustees are ultimately accountable for the investments they make available to members. Investment choice must be supported by consistently strong safeguards, rigorous oversight and timely action when risks emerge. The failures of Shield and First Guardian demonstrate the serious harm that can occur when members accumulate concentrated holdings in poor or unsuitable investment options," Bradbury said.

"Despite extensive supervisory and enforcement activity, material weaknesses in trustees' investment governance practices remain. Policy reform is needed to strengthen trustee accountability and help ensure members' interests remain at the centre of investment decisions."

The investment governance changes would apply to all trustees. However, they are expected to have the greatest impact on platform trustees, given their typically broader investment menus, more complex products and greater reliance on financial advisers and other third parties.

APRA's proposals are aligned with the measures announced by minister for financial services Daniel Mulino on August 19 to strengthen consumer protections and increase the resilience of the superannuation system.

APRA is seeking feedback on the proposed changes, including their effectiveness, proportionality and implementation impacts.

Submissions close on 3 February 2027. The standards are expected to be finalised in the first half of 2027. Subject to consultation, the new framework is expected to commence on 1 January 2028.