Our law sets out clear requirements for superfund liquidity and stress testing. Specific legal requirements are set out in the prudential standards.
I am pleased the super funds have each publicly confirmed their strong liquidity.
The confidence of the individual funds contrasts with the subterranean industry campaign for a bailout some weeks ago.This appears to have been an ambit claim.
I have sought reassurance from APRA that all the super funds have their houses in order as they have publicly stated. I have asked 13 questions on notice via the Senate Economics Committee.
Superannuation is so opaque. We need to knowhow issues will be handled if any arise.
The questions are as follow:
1. Superannuation Prudential Standard 510 Investment Governance requires that “RSE licensee must have a liquidity management plan, approved by the Board.”
a. How does APRA monitor compliance with this requirement?
b. Does APRA perform its own assessments of liquidity?
2. On stress testing, how does APRA monitor trustee compliance with the following requirements set out in SPS 510 Investment Governance:
a. An RSE licensee must have a comprehensive stress-testing program that includes, at a minimum, the performance of each investment option against the stress scenarios.
b. An RSE licensee must document a description of the methodology used to select and carry out stress tests that aligns with the RSE licensee’s risk management framework.
c. An RSE licensee must ensure that the results of the stress tests are reviewed periodically by senior management and reflected in the RSE licensee’s investment governance framework.
3. What sort of scenarios are assumed for stress tests such as
a. magnitude of market falls;
b. levels of unemployment;
c. magnitude of switching between options; and
d. Magnitude of switching between funds
4. Does APRA believe the trustee boards have sufficient skills to meet their investment governance obligations?
5. How does APRA know that trustees understand these obligations?
6. Prior to recent market volatility, how regularly did APRA expect a fund to self-assess its liquidity?
7. How frequently was industry best practice?
8. When did APRA last ask funds to self-assess their liquidity?
9. What proportion of funds have conducted tests in the last month?
10. How many funds have not provided APRA with liquidity stress test results that were conducted in the last six months?
11. Are conflicts of interest evident in the investment decisions made by superannuation trustees which may have created liquidity
problems in the wake of COVID-19?
12. Does a concentration risk exist in the superannuation scheme where multiple funds heavily rely upon a small number of investment managers?
13. Does APRA have any liquidity concerns about any regulated superannuation funds at present? If so, how should that be managed?