This shift could release billions of dollars for large super funds. Under the new guidelines, funds managing more than $30 billion can now hold reserves at just 0.175% of their funds under management (FUM). This is a decrease from the previous requirement of 0.25%, aligning with APRA's strategy to reduce regulatory loads on these big players.
APRA's revised structure categorizes funds to ensure appropriate reservation levels. Smaller funds, those managing under $30 billion, will continue to reserve the existing 0.25% of their FUM. Meanwhile, medium-sized funds with FUM between $30 billion and $165 billion are set to adjust to a 0.20% reserve. This tiered approach notably benefits large funds such as AustralianSuper and the Australian Retirement Trust, who can now access increased capital freedom starting mid-next year.
In its strategic shift, APRA highlighted its trust in funds to self-regulate based on their guidance. “Given this change, and noting APRA’s expectation that RSE licensees will determine their ORFR target amount in line with the guidance, APRA is no longer proposing that RSE licensees must engage with APRA prior to adopting a target amount lower than 0.25% of FUM,” APRA clarified.
The regulatory body aims to streamline processes, explaining, “APRA’s approach is intentionally simple, including an intent to reduce regulatory burden on RSE licensees in circumstances where there may not be commensurate prudential benefit.” Nonetheless, funds must still inform APRA of any significant adjustments to their ORFR target levels.
The oversight by APRA comes with retained authority. It reserves the right to enforce a specified target if an RSE licensee’s risk management does not align with its operational risk profile. As emphasized, "Finally, it remains the case under SPS 114 that APRA may require an RSE licensee to meet an ORFR target amount determined by APRA within a specified time where the RSE licensee’s target does not appropriately reflect the operational risks of the RSE licensee’s business operations."
Interestingly, despite building their reserves, the APRA noted hesitancy among RSE licensees to utilize these funds during operational risk events, often preferring other reserves or external funding sources. As revealed, “Instead, RSE licensees are using other reserves or external sources of capital following an operational risk event.” This observation underscores the regulator's initiative aimed at reshaping financial safety nets and advancing operational resilience.
This strategic recalibration by APRA not only lessens constraints but also promises a dynamic landscape for super funds, paving the way for enhanced financial management and resilience within the industry.
