APRA SPS 530 Investment Governance: Stress Testing and Liquidity for Super Trustees

What SPS 530 requires

The strengthened Prudential Standard SPS 530 Investment Governance commenced on 1 January 2023 and applies to RSE licensees of registrable superannuation entities. This standard mandates that RSE licensees maintain a robust investment governance framework. This framework must cover key areas including investment objectives, strategy, due diligence, and stress testing.

A core requirement of SPS 530 is the documentation of investment objectives and strategy for each investment option offered. This documentation ensures clarity and accountability in investment decision-making processes.

The investment governance framework itself must be subject to regular review, as well as review following any material change. This ensures the framework remains relevant and effective in managing investment risk.

Stress testing program

RSE licensees are required to develop, maintain, and implement a comprehensive investment stress testing program. This program must consider plausible adverse scenarios impacting asset classes and the overall portfolio.

Liquidity stress testing forms an integral component of the broader investment stress testing program and is incorporated within the liquidity management plan.

The results of stress testing are reported to the Board, and may lead to adjustments in investment strategy. Programs must be reviewed at least annually, and also following significant market events.

Valuation and liquidity practices

Superannuation trustees are expected to establish robust valuation governance frameworks. These frameworks must give particular detail to the valuation of unlisted assets. Trustees should also ensure valuation processes for illiquid assets are subject to periodic independent reviews. These practices are outlined within APRA SPS 530 investment governance and contribute to the overall management of investment risk.

Liquidity management plans are a key component of investment governance. These plans must address both normal and stressed conditions, including member redemptions and switching. Trustees must consider how these events might impact their ability to meet obligations.

To ensure operational resilience, trustees must hold sufficient liquid assets to meet member cash flow needs, even under stressed conditions. This requirement is also relevant when considering the impact of insurance within superannuation, as detailed in APRA SPS 250 insurance in superannuation.

Board and reporting accountability

The Board of a superannuation trustee holds ultimate responsibility for the investment governance framework. This includes approving the framework itself and any subsequent key changes. Senior management is accountable for the practical implementation of the investment governance framework on a day-to-day basis. This accountability extends to ensuring adherence to the approved framework and strategy. APRA CPS 511 remuneration standard considerations also apply to those responsible for investment governance.

Reporting obligations to APRA remain in place, and these reports must align with the requirements of SPS 530. Trustees must ensure these reports accurately reflect the investment governance framework’s operation and effectiveness. Any material breaches of the investment governance framework or strategy must be reported to APRA promptly.

Independent assurance of the investment governance framework should be incorporated into the scope of internal audit activities. This provides an additional layer of oversight and helps to validate the framework’s ongoing suitability and effectiveness.