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Superannuation Policy Alert: APRA releases discussion paper- Financial resources for risk events in  superannuation

 
 
APRA has released a discussion paper on financial resources for risk events in superannuation. APRA proposes to replace the existing Prudential Standard SPS 114 Operational Risk Financial Requirement (SPS 114) with enhanced obligations for trustees.

The enhancements include widening the scope of permitted use of financial resources held to manage operational risks, reducing barriers to efficient use of these resources, and requiring trustees to adopt a more sophisticated risk-based approach to determining how much to hold. 

At the core of these enhanced requirements will be a two-tiered model, consisting of:
  • Baseline component
    • to ensure ready access to financial resources to fund recovery or exit activity; and
  • Operational risk component
    • to spread the impact of operational risk fairly across different cohorts of members

The operational risk component will largely reflect the approach of the existing Operational Risk and Financial Requirement (ORFR) but with greater flexibility. The enhanced requirements seek to widen the scope of permitted use, adopt a more sophisticated risk-based approach to the level of financial resources and reduce barriers to efficient use. APRA considers that, together, these enhancements will better support financial resilience in the superannuation sector.

The proposed widening of scope of the operational risk component includes allowing RSE's to address operational risks before they adversely affect outcomes for members.  This is a fundamental shift from the existing requirements that limit the use of the ORFR to costs arising from an operational risk event.

The paper outlines in detail the differences in the proposed baseline component and operational risk component, and the options available to calculate these. It also outlines how the new SPS 114 will interact with a range of other APRA reforms including Strategic planning and member outcomes, Superannuation transfer planning, Operational risk management and Financial contigency and resolution planning. 

Consultation closes on 17 March 2023.  AIST will be making a submission to this important consultation and members who would like to be involved can contact Kate Brown to express their interest - kbrown@aist.asn.au