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Charles Littrell Executive General Manager Australian Prudential Regulation Authority 7 May 2003

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

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Charles Littrell Executive General Manager Australian Prudential Regulation Authority 7 May 2003

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  1. ASFA WA STATE CONFERENCE PRUDENTIAL SUPERVISION TRENDS Charles Littrell Executive General Manager Australian Prudential Regulation Authority 7 May 2003

  2. APRA’s Mission • Ensure regulated entities meet their financial promises • Depositors, Policyholders, Super Fund Members • Competition, innovation, cost

  3. The APRA Mission in Super • DB members have a promise • Accumulation members have an expectation • All Funds: • Trustee works in member interest • Sound Risk Management • SIS compliance

  4. Probability and Impact Rating System (PAIRS) 3750 18750 56250 250 50 3750 11250 750 10 2250 150 750 4 1 15 75 225

  5. Supervisory Oversight and Response System (SOARS) RISK I M P A C T

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

  7. Is Super Licensing Hard? • 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

  8. Key Risk Management Issues • Trustee Risk • Training and time • Conflicts of interest • Investment Risk • ALM • Liquidity • Dollars on the table • Outsourcing • Plan for adversity

  9. Can You Demonstrate GoodRisk Management? • Write it down! • Plans, procedures outcomes • Regular Review • By Trustees • By third parties • Tell your members • And the public?

  10. Other Issues • 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

  11. An Example: Trustee Effectiveness Trustee ability to maximise member interest APRA SCREEN: ADJUST FOR: Asset allocation Return net – Return Benchmark = Indicator FORMULA: • > - 1/.0: Good • 1.0 to – 2.50: Ok • 2.5 or Lower: Hmm… RULES OF THUMB:

  12. Summary • APRA is becoming… • More data driven • More systematic • More interventionist • Don’t worry about licensing • Worry about Risk Management • Trustees are the key • Competent • Diligent • Motivated

  13. ASFA WA STATE CONFERENCE PRUDENTIAL SUPERVISION TRENDS Charles Littrell Executive General Manager Australian Prudential Regulation Authority 7 May 2003

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