Funds face anxious wait for super review

The Australian Government has hinted that it may ease some of the technology cost burdens on Australia’s $1.7 trillion superannuation industry, by softening legislation that had aimed to offer transparency to regulators and consumers.

Under an exposure draft of rules the former ALP government released for consultation earlier this year, registered super entities faced portfolio disclosure obligations requiring investment in costly and sophisticated reporting systems.

The proposal was one of number derived from the Cooper review of Australia’s savings retirement industry, which recommended that consumers and the Australian Prudential Regulation Authority (APRA) be given better visibility of super fund assets.

However, under a series of proposals being considered by the newly-crowned assistant treasurer Senator Arthur Sinodinos, these reporting requirements could be scaled back dramatically.

Senator Sinodinos has launched a discussion paper that explores the disclosure issue, as part of a wide-ranging review of the current super regulation scheme.

In it, the federal treasury made note of “submissions from across industry" that "raised various concerns", particularly around the requirements to disclose commercial-in-confidence and market sensitive information, the degree of look through involved and the requirement to disclose disaggregated data.

William Fraser, head of esolutions for investor services at J.P. Morgan, welcomed the government’s new approach.

"The practicality of it is part of what this review is trying to look at, because just providing information for information's sake puts a tremendous amount of cost and burden on the various providers and it needs to have an outcome that's going to deliver value.

“That's what's really driving this - let's not disclose data for data's sake, let's look at the value and what the purpose of this is going to be,” Mr Fraser said.

Mr Fraser said that under one of the previous scenarios being considered, the industry faced obligations to report up to 10,000 lines of data. This, he said, was “just silly, because no-one is going to get value from that”.

Under current legislation trustees are only required to disclose details of investments valued in excess of five percent of their total assets.

Under the proposal favoured by the former Labor government, super funds and their custodians were facing highly granular portfolio disclosure rules including reporting on assets they did not own directly, such as collective investment vehicles. Had the rules been accepted they would have been in place from July 1, 2014.

Rhys Octigan, head of business development for superannuation technology specialist DST Global Solutions said that full portfolio disclosure became complicated once offshore fund managers became involved.

“Where that information is offshore with an international fund manager, that fund manager is not subject to the same regulations as Australian fund managers and it's more difficult to get,” Mr Octigan said.

A materiality threshold is one of the proposals now on the table for consideration.

David Haynes, executive manager of policy and research at the Australian Institute of Superannuation Trustees said that the materiality threshold was an area in which the super industry needed clarity to avoid over-investing in technology.

“Government needs to provide some level of certainty so that funds don't put together unnecessary systems which then aren't required to be put in place.

"There are costs involved with building systems to disclose each and every discrete element in your holdings," he said. "If there is a materiality threshold in place - so that you only need to disclose holdings worth more than say, a million dollars or one percent of your holdings - that might be a completely different solution."