Internalising investment management impacts APRA levy

Superannuation funds are facing a 34.6% increase in the so-called Australian Prudential Regulation Authority (APRA) levy with a new Treasury discussion paper making clear that funds internalising investment management is a factor.

The discussion paper also makes clear that APRA turning its attention to so-called ‘choice’ superannuation products is also a factor.

The APRA levy is increasing even though the Treasury discussion paper makes clear that the Australian Securities and Investments Commission (ASIC) is no longer a factor.

The Treasury discussion paper on the Proposed Financial Institutions Supervisory Levies for 2024-25 detail APRA, the Australian Taxation Office (ATO), the Australian Competition and Consumer Commission (ACCC) and Treasury itself as recipients of levy funding, while ASIC will remain reliant on its own industry funding model.

According to the Treasury discussion paper, total funding by the superannuation industry of $121.6 million for 2024-25 consists of $73.7 million for APRA’s supervision of the sector and $47.9 million for costs relating to the ATO, GNGB and Treasury.

Explaining its approach, the Treasury discussion paper cited “system-wide risks associated with investment market conditions and the superannuation industry’s growing size and impact on the Australian financial system”.

“APRA expects RSE licensees to ensure investment governance practices are sound, particularly in relation to asset valuation and liquidity management practices. These risks become further amplified as trustees increasingly start to internalise all or part of the investment functions. APRA will review trustees’ approaches to investment management internalisation.”

The discussion paper also references the superannuation performance test and APRA’s heatmaps, noting that the regulator’s emphasis “will move to ensuring Trustee Directed Product (TDP) transparency and comparability is enhanced.

“Trustees continue to operate in a heightened risk environment with increasing cyber risks and investment markets that are changing in response to inflation, higher interest rates and geopolitical factors,” the discussion paper said.

“APRA will assess and address any observed deficiencies in how trustees are preparing for the changing environment, including their operational resilience in responding to cyber security events and the adequacy of their practices to respond to market stresses, including possible liquidity stress.”