APRA questions platform filtering of Shield, First Guardian

The Australian Prudential Regulation Authority (APRA) has stated that if superannuation platforms had implemented investment holding limits with respect to Shield and First Guardian then member losses would likely have been less.

The regulator has openly canvassed the use of investment holding limits as “better industry practice” but in answer to questions on notice from the Senate Economics References Committee acknowledged that member losses would have been limited, not eliminated.

In doing so, APRA made clear the obligation of trustees to determine the suitability of product to be on their platforms.

It said it had written to platform superannuation trustees in October confirming it will consider whether further enhancements to the relevant prudential standards and guidance are necessary.

“As part of this, APRA will consider the merits of requiring trustees to set investment holding limits,” APRA said in answer to a question from Tasmanian Greens Senator, Nick McKim.

The APRA answer said that, in the context of platform products, the setting of investment holding limits for specific investment options is a decision for the trustee.

“The trustee should first be satisfied that an investment option is suitable for inclusion on the platform. If an investment option is not suitable for inclusion on the platform, then any investment holding limits are only a partial and inadequate protection for members,” the regulator said.

“Assuming the trustee is satisfied that an investment option is suitable for inclusion on the platform then:

• investment holding limits operate to constrain investment choice, but can if set and implemented effectively provide a level of member protection by potentially reducing exposure to investment options that carry higher risks;
• calibration of suitable investment holding limits will depend on the risk profile of specific investment option, as well as members’ investment portfolios.

“To the extent that the trustees who put Shield and First Guardian on their platforms had set and implemented lower investment limits compared to the actual investment levels of members, then in such circumstances those members’ losses would be limited to that specific degree.

“However, setting of investment holding limits would not eliminate losses,” the APRA answer said.