Wednesday, 2 April 2008 
 
 
Since the Registrable Superannuation Entity (RSE) licensing regime was introduced in mid-2004, the majority of superannuation industry experts believe that discipline around governance practices has tightened and that standards have improved, according to a recent Governance of Superannuation Funds survey undertaken by the Institute and Deloitte. 
 
Another key finding from the survey was that 66 per cent of participants agreed that Board risk management practices have changed significantly as a result of RSE licensing. “RSE licensing has created a greater focus on risk management and a higher level of professionalism in the industry,” said Deloitte Superannuation Partner Richard Rassi. 
 
“Seventy eight per cent of survey participants rated the quality of their risk management as excellent or above average,” Rassi said. He added that the licensing regime has hastened the exit from the industry of trustees who were unable to meet the higher expectations and the standards it imposed.  
 
“This is a positive outcome from the RSE licensing regime,” said the Institute’s Head of Audit, Andrew Stringer, “But, as the recommendations suggest, there is still scope for improvement. 
 
“With funds under management for the industry currently at $1,187bn, the drive for continuous improvement in fund governance practices is important given the continued growth in the industry.” 
 
Rassi commented that funds under management for the industry in Australia had almost doubled in three years, growing from $631bn in July 2004 to $1,187 billion towards the end of 2007 when the Survey was initiated.  
 
“The forecast is for funds under management to more than triple by 2021 reaching in excess of $4,000 billion,” Rassi said. 
 
Key recommendations highlighted by the survey include: 
> Continuous improvement of directors’ competence through adequate training and formal qualifications 
> Funds to consider independent annual assessment of Board performance 
> A review of directors’ remuneration levels to ensure they are commensurate with responsibilities and encourage fulltime ‘professional directors’ to enter the industry 
> Improve how risk management practices are embedded in the culture of the organisation 
> Funds to adopt a partnership approach to doing business with outsourced service providers to improve quality of service  
> APRA to provide prudential guidance specifically on ‘alternative investments’ 
> Funds to simplify and increase the relevance of reporting to members 
> A call for a single regulator for reporting purposes. 
 
Commentary on the findings 
 
“The survey highlighted the shift to new investment opportunities as a significant change in the industry since 2002. Seventy per cent of participating funds are investing in alternative investments, with 27 per cent of those surveyed dissatisfied with the way the current regulatory environment is addressing the risks associated with them,” Rassi said. 
 
“The areas of concern included infrequent valuations, the quality of the investment reporting and in some cases a lack of understanding around the risks associated with the investments,” he said. 
 
Andrew Stringer said, “The survey report will raise awareness of the importance of good governance for superannuation funds. It highlighted the need to ramp up continuous improvement and training for directors to ensure continued competence.  
 
“Three areas of training identified for particular attention were the need to understand the difference between directing and managing; alternative investments; and the value of risk management.”