asfa wa state conference charles littrell executive general manager australian prudential regulation...

ASFA WA STATE ASFA WA STATE CONFERENCECONFERENCE

Charles LittrellCharles Littrell

Executive General ManagerExecutive General Manager

Australian Prudential Regulation AuthorityAustralian Prudential Regulation Authority

7 May 20037 May 2003

PRUDENTIAL SUPERVISION TRENDSPRUDENTIAL SUPERVISION TRENDS

2

• Ensure regulated entities meet their financial promises

• Depositors, Policyholders, Super Fund Members

• Competition, innovation, cost

APRA’s MissionAPRA’s Mission

3

• DB members have a promise• Accumulation members have an expectation• All Funds:

– Trustee works in member interest– Sound Risk Management– SIS compliance

The APRA Mission in The APRA Mission in SuperSuper

4

PROBABILITY RATING

IMPACT RATING

LOW MEDIUM HIGH EXTREME

Extreme

High

Medium

Low

250250 37503750 1875018750 5625056250

5050 750750

151511

225022507507501501501010

112501125037503750

7575 225225

Probability and Probability and Impact Rating Impact Rating System (PAIRS)System (PAIRS)

4

5

Supervisory Supervisory Oversight and Oversight and Response System Response System (SOARS)(SOARS)

LOW

LOW

MEDIUM

HIGH

MEDIUM

HIGH

EXTREME

EEXXTTRREEMMEE

NORMAL

OVERSIGHT

MANDATED

IMPROVEMENT

RESTRUCTURE

RESTRUCTURE

LLAARRGGEE

NORMAL

OVERSIGHT

MANDATED

IMPROVEMENT

RESTRUCTURE

MMEEDDIIUUMM

NORMAL

NORMAL

OVERSIGHT

MANDATED

IMPROVEMENT

RESTRUCTURE

LLOOWW

NORMAL

NORMAL

MANDATED

IMPROVEMENT

RESTRUCTURE

IMPACT

RISKRISK

II

MM

PP

AA

CC

TT

6

• Subject to legislation• Licensing, Risk Management• Tiered• Multi-year process

Super LicensingSuper Licensing

7

• Demanding but not complicated• Do you have a sound Risk Management strategy?• Do you follow the strategy?• Can you prove this to APRA?• 3 x “Yes” = Simple Process• Any “No” means more work is needed

Is Super Licensing Is Super Licensing Hard?Hard?

8

• Trustee Risk– Training and time– Conflicts of interest

• Investment Risk– ALM– Liquidity– Dollars on the table

• Outsourcing– Plan for adversity

Key Risk Key Risk Management IssuesManagement Issues

9

• Write it down!– Plans, procedures outcomes

• Regular Review– By Trustees– By third parties

• Tell your members– And the public?

Can You Demonstrate Can You Demonstrate GoodGoodRisk Management?Risk Management?

10

• Statistical collections– Expand from June 2004– Balance sheet, cash flow, costs– Will help APRA ID outliers

• Research– Fund performance– Cost composition– Public use of data

Other IssuesOther Issues

11

An Example: Trustee An Example: Trustee EffectivenessEffectiveness

APRA SCREENAPRA SCREEN::

ADJUST FORADJUST FOR::

RULES OF THUMBRULES OF THUMB::

FORMULAFORMULA::

Trustee ability to maximise member interest

Asset allocation

Return net – Return Benchmark = Indicator

> - 1/.0: Good

-1.0 to – 2.50: Ok

-2.5 or Lower: Hmm…

12

1. APRA is becoming…– More data driven– More systematic– More interventionist

2. Don’t worry about licensing– Worry about Risk Management

3. Trustees are the key– Competent– Diligent– Motivated

SummarySummary

ASFA WA STATE ASFA WA STATE CONFERENCECONFERENCE

Charles LittrellCharles Littrell

Executive General ManagerExecutive General Manager

Australian Prudential Regulation AuthorityAustralian Prudential Regulation Authority

7 May 20037 May 2003

PRUDENTIAL SUPERVISION TRENDSPRUDENTIAL SUPERVISION TRENDS