One clear reminder from the last three years has been that things will often change in unexpected ways and often when we have the least flexibility to respond. In this article we discuss how the changes to the APRA Prudential Standard 530 Investment Governance (“SPS 530”), which take effect from 1 January 2023, seek to improve an organisation’s agility to respond to, and remain resilient through, change.
The updates to SPS 530 are aimed at ensuring better member outcomes through updated requirements that enhance stress testing, valuation, and liquidity management practices. Specifically, the changes will necessitate an increase in the degree of formalisation of investment processes, assumptions, and responsibilities. There is also a particular and specific emphasis placed on the obligation of the Board (and relevant committees) to understand the strategy, the drivers of performance, and to have processes in place to identify the need for and to implement corrective action.
The performance of each investment option will need to be reported to the board and senior management, with appropriate performance benchmarks specified, and the sources of outperformance and underperformance identified and understood - critical to any effective management feedback loop. This will be crucial not only for explaining why the performance was what it was, but whether the performance was consistent with the approved investment strategy, and whether corrective action is or was warranted.
Several components of the APRA prudential practice guides relating to SPS 530 have been elevated into the Standard itself, and the amended SPS 530 now sets out specific requirements around:
This is unsurprising given that these were three areas that were considered by some to be “extensions” to the expectations of RSE licensees when SPS 530 was originally launched in 2013. These areas were also subject to significant media commentary in the wake of the initial COVID-19 induced market volatility in 2020 and liquidity concerns were prominent following the Early Release of Superannuation scheme.
The need for comprehensive reviews remains, and as comprehensive reviews are intended to be forward looking, they will need to consider the implementation of the new requirements.
As an RSE licensee, the time is now to act, to be compliant with the new requirements in time of commencement from the 1 January 2023. Please reach out if you would like to discuss how to respond to these changes.