APRA cedes ground on director tenure limits

The Australian Prudential Regulation Authority (APRA) has conceded ground to industry superannuation funds and others by extending by two years its proposed tenure limit for directors to 12 years.

As well, APRA has backed away from seeking to legally require significant financial institutions (SFIs) to consult with the regulator over potential appointments.

The regulator has written to banks, insurers and superannuation funds informing that after receiving their feedback, it has moved from initial proposal to impose a lifetime default tenure limit of 10 years for non-executive directors of a regulated entity.

The letter said APRA still believes a hard tenure limit is necessary to improve board renewal practices, “but acknowledges that 12 years is more aligned with existing board arrangements and cycles”

The APRA letter, signed off by the regulator’s chair, John Lonsdale, said the feedback to its governance prudential standards discussion paper had not changed APRA’s view on the need for change “but has in some instances identified a more effective policy approach”.

The letter pointed to the attitude of respondents, noting that of industry superannuation funds.

“APRA received a broad range of feedback from recent consultation. There was strong recognition of the importance of sound governance practices and the value of raising minimum standards to be consistent with contemporary practice. Many entities indicated that their current practices already align with APRA’s proposals. There was also strong support for initiatives that can reduce burden and address regulatory overlap,” it said.

“At the same time, many stakeholders expressed a preference for principles-based requirements and flexibility in how they achieve APRA’s intended outcomes. Some representatives of mutuals and industry superannuation funds sought assurance that revised standards would accommodate all business models, noting the specific value they can deliver.

“Three topics attracted the most feedback: tenure limits, independence and early engagement with APRA on proposed appointments. In these cases, while stakeholders acknowledged APRA’s concerns, they were not convinced of the net benefit of the proposed solutions,” the letter said.

An important element of the changes flagged by the APRA letter is the regulator’s pull back from its position that it would require significant financial institutions (SFIs) and non-SFIs under heightened supervision to “engage proactively with APRA on potential appointments”.

It said that APRA would now not require early engage on appointments but “still considers early engagement on critical appointments to be best practice”.