Super spending calls BFID compliance into question

There is still much room for improvement when it comes to super funds' expenditure management practices, with APRA finding some RSEs caring more about competing with peers than members' best financial interests, others not having revisited historic arrangements since the BFID was legislated, and a host of other shortcomings.

The review of 14 RSE licensees' expenditure practices and decisions comprised thousands of documents covering discretionary spending, marketing and connected entity expenses. The regulator also looked at the contributing factors to funds' expenditure decisions, including potential conflicts of interest, guidance related to spending, and monitoring and reporting.

When it comes to decision-making, APRA said it found instances of RSEs placing more emphasis on the positioning or activities of competitor funds than on members' best financial interests. It also found cases in which decisions to continue with contracted expenditure did not demonstrate a clear rationale or member benefit, insufficient levels of due diligence being conducted, and some RSEs lacking standardised processes for entering into agreements.

However, it did note that some RSEs demonstrated better practices, including decision-making supported by data, clear links between objectives and expected outcomes for members, use of a committee for additional oversight, and standardised processes.

Its analysis of expenditure management frameworks found several that were "sub-optimal." APRA observed overreliance on policies that lacked specific criteria for assessing expenditure against members' best financial interests or didn't map spending to the Sole Purpose Test. It also identified RSEs that demonstrated a general lack of robust governance and oversight of fund expenditure, including decisions and frameworks not aligned to SPS 515, it said.

APRA said better frameworks integrated proactive management of potential risks associated with expenditure, and other clearly defined types of expenditure, pre-determined financial thresholds and documented all approvals for sound governance and transparency.

Finally, when it came to monitoring and reporting, APRA said it came across instances of undue reliance on reporting by third parties that didn't account for RSEs' own success measures, including some cases where performance wasn't measured against the original stated metrics in an agreement. It also found poor use and adoption of quantitative metrics, despite needing to measure financial outcomes for members.

Most concerningly, APRA said some RSEs had not revisited agreements they entered prior to the commencement of the BFID, saying this demonstrated a "significant compliance risk and reflects a lack of responsiveness to evolving requirements."

On this front, APRA said better practices included funds with evidence-based and regular monitoring to assess success, demonstration of how increased membership on the back spending led to fee reductions, instances of outcomes being regularly presented to the board, and funds that had integrated the outcomes delivered into Business Performance Reviews.

Where shortcomings were identified, APRA said it has communicated directly with the respective RSEs and has commenced ongoing supervision.

"All RSE licensees are encouraged to review their practices considering the better practice examples and observations below holistically and take action to address any deficiencies," APRA deputy chair Margaret Cole said.

"Where APRA identifies practices which fall short of legal requirements, APRA will utilise the full range of its powers to hold an RSE licensee accountable."