AIST Governance Group APRA Prudential Standards – Industry Scorecard 12 months on 15 October 2014 Stephen Glenfield, General Manager South-West Region

ORFR (SPS 114) Trustee Practices/Observations Adopting the minimum 0.25% ORFR Target Amount Clearly defined definitions of Operational Risk Events Well defined material trigger events Investing the ORFR target amount monies in an investment strategy matched to the majority of the Fund assets

ORFR (SPS 114) Trustee Practices/Observations Watch out for: Non-operational risks included in the determination of the ORFR Target amount Lack of availability Operational Risk Data

Defined Benefit Matters (SPS 160) Trustee Practices/Observations Shortfall limits – a solid rationale and regular monitoring Restoration Plans Forward planning around reduced timeframes for obtaining an actuarial report

Risk Management (SPS 220) Trustee Practices/Observations Clearly articulated Risk Appetite Statement (RAS) RAS aligns with strategic direction Measurable risk tolerances Risk culture driven from the top and evidenced Effective and regular reporting on risk

Risk Management (SPS 220) Trustee Practices/Observations Watch out for: Risk management vs compliance Meaningful & measureable risk tolerances Business Plan doesn’t align with RAS

Outsourcing (SPS 231) Trustee Practices/Observations Outsourcing policies reflect practices in place Alignment of outsourcing risks and risk management framework Early consultation with APRA

Outsourcing (SPS 231) Trustee Practices/Observations Watch out for: Outsourcing policies replicate/quote SPS 231

Insurance in Superannuation (SPS 250) Trustee Practices/Observations Rigour around tender and due diligence processes Thought and research in development of benefit design

Insurance in Superannuation (SPS 250) Trustee Practices/Observations Watch out for: Insurance Management Framework documentation is too high level Lack of focus on data management

Business Continuity Management (SPS 232) Trustee Practices/Observations Watch out for: Business Continuity Management Policy lacks detail Business Impact Analysis ad-hoc and lacks structure Business Continuity Plan lacks clarity Testing and Reporting ad-hoc

Governance (SPS 510) Trustee Practices/Observations Governance policy addresses board renewal and board performance Remuneration Policy aligns remuneration and risk management Board Audit Committee is in place Trustee has or uses an appropriately resourced and skilled internal audit function Trustee owns the strategic plan for Fund

Governance (SPS 510) Trustee Practices/Observations Watch out for: Risk not adequately covered by the audit committee (and no separate risk committee) Adequacy of renewal policy Board skill set Not letting management manage

Conflicts of Interest (SPS 521) Trustee Practices/Observations Built on a robust Risk Management Framework (RMF) and risk culture Tackle actual, potential and perceived conflicts Disclose all types of relevant interests and duties Identification and management of conflicts integrated within the broader Conflicts Management Framework and the RMF

Conflicts of Interest (SPS 521) Trustee Practices/Observations Watch out for: No conflicts identified as untenable Vision tends to be narrow – little regard for perceptions RSE licensee complexity not picked up in the Conflicts Management Framework Registers outdated, incomplete and lacking coverage High materiality thresholds

Investment Governance (SPS 530) Trustee Practices/Observations Strong due diligence attaching to the selection of investments Diligent monitoring of investments/performance Periodic review of investment objectives and investment strategy A comprehensive stress testing programme and a liquidity management plan are in place and being given effect to

Some reminders from APRA APRA’s Guidance Material provides examples of better practice APRA FAQs are a good reference to APRA’s interpretation of Prudential Standards APRA speeches provide industry with messages of APRA’s expectations and examples of better governance

Discussion