On 28 June 2024, the Australian Prudential Regulation Authority (APRA) issued a letter to all Registrable Superannuation Entity (RSE) licensees sharing initial observations from its thematic review of the superannuation industry’s preparedness for Prudential Standard CPS 190 Recovery and Exit Planning (CPS 190).
The requirements of CPS 190 come into effect for the superannuation industry from 1 January 2025 .
APRA’s letter provides an opportunity for RSE licensees to consider whether their recovery and exit plans are sufficiently robust and effective to meet the requirements of CPS 190, and whether they are on track to meet these requirements within the next six months.
This article provides a brief overview of:
the requirements of CPS 190;
the findings from APRA’s targeted thematic review of the superannuation industry’s preparedness for CPS 190; and
APRA’s initial observations for improvements and better practice.
Overview of CPS 190
CPS 190 aims to ensure that all RSE licensees are adequately prepared for scenarios that may impact the financial viability of their business, including their ongoing ability to act in the best financial interests of beneficiaries.
Broadly, CPS 190 will require RSE licensees to develop and maintain a recovery and exit plan, and capabilities to anticipate, manage and respond to periods of stress.
Every RSE licensee must comply with the obligations under CPS 190 relating to both recovery and exit. The prospect of needing to activate an exit plan may be more conceivable for some funds (for example, smaller funds and/or funds with trustees that cannot raise capital to bolster financial resilience in times of significant stress) and, in practical terms, this may culminate in more comprehensively developed exit plans. Other funds may see greater and more immediate utility in developing more comprehensive early warning indicators that bolster the various metrics that might already be incorporated in their risk appetite statements, investment stress testing, unlisted asset valuation policies and liquidity management policies.
APRA’s thematic review
Over the first half of this year, APRA has conducted a targeted thematic review of the superannuation industry’s preparedness for CPS 190, considering and assessing the key components of the standard (i.e., trigger frameworks, governance arrangements, recovery and exit actions, communication strategy, and assessment of recovery capability).
Opportunities for improvement and better practice examples
APRA has put RSE licensees on notice, stating that its review “highlights opportunities for improvement and the immediate need for RSE licensees to further invest in building the structures and capabilities to meet the requirements of CPS 190 by 1 January 2025”.
Common areas of weakness identified by APRA include:
Generic early warning indicators and trigger levels that are not tailored to the RSE licensee’s operating environment and risk profile;
Failing to consider whether an uplift in capability may be required to mitigate the execution risk associated with enhanced preparatory measures for recovery and exit options; and
Not implementing proactive communication strategies, including templates for significant event notices and media releases, which are necessary for the effective execution of recovery and exit plans.
When an RSE licensee is reviewing its preparedness for CPS 190, it should have regard to (among other things) the examples of better practice set out in APRA’s letter.