Time: 2024-07-01
Superannuation funds in Australia are facing challenges in financial contingency planning, as highlighted by the Australian Prudential Regulation Authority (APRA). In a recent review of 16 superannuation fund licensees, APRA found deficiencies in their approach to exiting and recovering from adverse situations. One of the main areas of weakness identified was the lack of preparatory measures to streamline limited recovery or exit actions. Some funds may struggle to restore financial resilience due to factors such as ownership structure, business model, and access to external capital.
APRA recommended that superannuation funds enhance proactive measures and uplift capability to reduce the execution risk of limited recovery or exit actions. The regulator also advised against relying on contingent options like litigation or insurance claims proceeds for timely recovery, as they can be time-consuming and uncertain. While some RSE licensees are making progress in meeting the minimum requirements of CPS 190, the review identified common areas of weakness that need to be addressed. Improvements are needed in early warning indicators, trigger frameworks, preparatory measures for recovery and exit options, and proactive communication strategies to support effective execution of plans, especially during times of stress.
The review serves as a wake-up call for superannuation funds to invest in building the necessary structures and capabilities to meet the requirements of CPS 190 by 1 January 2025. It is crucial for RSE licensees to have a comprehensive financial contingency plan in place to ensure they can effectively navigate challenging situations and protect the interests of their members. By implementing the recommended enhancements and proactive measures, superannuation funds can better prepare themselves for any future financial uncertainties and strengthen their overall resilience in the industry.
Financial contingency planning is a critical aspect of the superannuation industry, and regulators like APRA play a key role in ensuring that funds are well-prepared to handle adverse situations. With the right strategies and capabilities in place, superannuation funds can safeguard the financial interests of their members and maintain stability and trust in the industry. The review serves as a reminder of the importance of proactive planning and risk management in the superannuation sector, highlighting the need for continuous improvement and readiness to adapt to evolving financial landscapes.
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