charles littrell executive general manager australian prudential regulation authority 7 may 2003
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ASFA WA STATE CONFERENCE. PRUDENTIAL SUPERVISION TRENDS. Charles Littrell Executive General Manager Australian Prudential Regulation Authority 7 May 2003. APRA’s Mission. Ensure regulated entities meet their financial promises Depositors, Policyholders, Super Fund Members - PowerPoint PPT PresentationTRANSCRIPT
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
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• 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
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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
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• 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?
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• 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
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• 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?
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• 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
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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…
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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