Cash is cash, APRA tells super funds

The prudential regulator has chided superannuation funds for investing members' funds held in cash options into non-cash securities like bonds and hybrid debt instruments among others.

APRA's review found cash options had exposure to asset-backed and mortgage-backed securities, commercial bonds and hybrid debt instruments, credit-default swaps, loans and other credit instruments - which it says don't qualify as cash.

"These assets do not typically exhibit the characteristics necessary to be considered as cash or cash equivalent," the regulator said in a letter addressed to all RSE licensees.

APRA's definition of cash identifies it as: cash on hand, demand deposits and cash equivalents that represent short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

"APRA considers that a superannuation fund member would understand that exposure to a 'cash' investment option or product will be readily accessible (for withdrawal or transfer) without change in value," it said citing prudential standard SPS 530 Investment Governance.

In some cases the reverse was observed, where a fund's investment policy framework permitted cash options to invest in non-cash assets but the regulator observed "no material exposures".

The regulator will follow up with specific RSEs identified in the review. Going forward, it will also monitor RSE's cash investment options on an ongoing basis.

"APRA expects that RSE licensees consider the content of this letter and, where necessary, review and restructure 'cash' investment options with exposure to non-cash assets," it said.

"APRA also expects RSE licensees to review relevant investment governance policies such that an appropriate framework is in place, including criteria for inclusion of particular assets in a cash option."

Read more: CashAPRARSE
Link to something vTlGWhPT