SYDNEY, Oct. 22 -- Australian Prudential Regulation Authority issued the following media release:

Good afternoon and thank you for inviting me to speak at my first FSC Retirement Summit.

It's been just over six weeks since I started at APRA as the new Deputy Chair with responsibility for superannuation. Since then, I've met a range of stakeholders, including many leaders of the superannuation industry.

Today, I would like to share with you some initial observations and insights to signal APRA's priorities and the approach that we will bring to the regulation of the superannuation system.

A world class retirement savings system

Australia's superannuation system is a unique part of our country's economic and social model. It was created with a clear purpose to give Australians the opportunity to retire with dignity and financial security and to reduce the pressure on public finances as our population ages.

Today, Australians have entrusted almost $5 trillion in retirement savings to the system, including around $3.4 trillion in APRA-regulated funds. As last month's Intergenerational report notes, that's up from just $148 billion when the Superannuation Guarantee was introduced in 1992.

When I returned to Australia in 2024, after working as a senior executive at the OECD in Paris for a decade, I was struck by the scale and growth that Australia's superannuation sector had achieved during my absence.

Superannuation has developed into an important part of the Australian financial system, with superannuation assets now exceeding one-and-a-half times Australia's annual economic output and are, over time, expected to rival and potentially surpass the size and influence of our banking sector.

Given its growth and scale, superannuation has become a systemically important part of Australia's financial architecture, increasingly interconnected with global markets and critical to the financial wellbeing of millions of Australians.

In just a few decades, Australia has built one of the largest retirement savings systems in the world and - on current projections - is on track to become the world's second-largest pension market.

This should make us proud, especially those of you who have contributed directly to this success. But we cannot afford to be complacent. As you all know, past performance is no guarantee of future success.

This is especially the case when we consider that many of the challenges the industry now faces are quite different to those faced in the past. These challenges will require new and different capabilities, investments and approaches.

Ensuring trust and confidence in the superannuation system

APRA's mandate guides our work: helping Australians have trust and confidence that the financial institutions they rely on, including superannuation funds, are safe and resilient.

To achieve this, I want to work with you all to ensure that, collectively, we are able to uplift capability across the industry to make the system stronger, so that it is equipped to meet the challenges of today and the future and delivers on the promise of a more comfortable and dignified retirement for all superannuation members.

The retirement phase: where the rubber hits the road

Up until now, much of the system's focus has been on accumulation. In the accumulation phase, the objective has been to help Australians build wealth for their retirement, whereas the retirement phase will be about helping them use that wealth confidently and sustainably.

Over the next decade, around 2.5 million Australians are expected to make the transition into retirement. This is not simply a demographic shift, but will represent a fundamental change in what millions of Australians need from their superannuation fund.

This is where the rubber hits the road. Making sure that we are able to match the success of what has been achieved in accumulation in the retirement phase will be a crucial test of whether the great promise of our system can be realised.

This change will require a significant transformation across the industry and will be an important focus of APRA's work over the years ahead.

A risk-based approach for a volatile and uncertain world

Today, we are operating in a world of heightened volatility and rapidly evolving risks. Whether it be geopolitical and economic shocks, cyber-attacks, financial crimes and artificial intelligence (AI), the operating environment has never been more threatening.

These risks are increasingly interconnected, they can emerge with little warning, and they can move at extraordinary speed. For trustees, resilience therefore needs to be built for both the risks we know we face and for shocks we cannot predict.

Over the last six weeks, as I have been consulting across the industry, I have been reflecting deeply on the areas in superannuation that require APRA's greatest attention. This has led me to a set of conclusions that are neatly aligned with the focus areas outlined in our Corporate Plan.

As the prudential regulator, it will not surprise you that our approach is risk-based. That is why we dedicate our energy and resources to the areas of greatest risk, particularly those that pose the most high-impact threats to the system and its members.

Many of these risks are non-financial risks, some of which have the capacity to quickly become significant financial risks: operational resilience, geopolitics, cyber and AI.

Historically, there has been an intense focus on achieving investment returns that match or exceed benchmarks, while keeping downward pressure on fees and expenditure. These are important areas that go to the heart of whether trustees are delivering for the best financial interests of their members.

These areas will continue to be an important focus for APRA. Where we identify deficiencies, or where trustees fail to act in the best financial interests of their members, we will act decisively and we will use the full range of our supervisory and enforcement powers. That is our responsibility.

Defending against cyber and AI threats

The risks that keep me awake at night are those that have the potential to threaten financial stability or lead to catastrophic losses for members.

Consider a scenario where a series of threats converge. For example, a cyber vulnerability, combined with increasingly sophisticated AI-enabled attack, could create a pathway for criminals or a malicious foreign actor to reach directly into the retirement savings of ordinary Australians.

In the worst case, someone who has spent a lifetime building up their super, could see those savings disappear in a matter of moments. This would be a tragedy for the individual concerned, but it would also be particularly challenging for the system if it happened on a large scale, placing enormous pressure on existing compensation mechanisms.

Shared threats demand a collective response

Ultimately, responsibility for protecting members and managing these risks rests with each individual trustee. Collective arrangements cannot replace the responsibilities of individual institutions. But they can strengthen the connections, information-sharing and coordination that matter when an incident crosses organisational boundaries.

That is why we need to work collectively to strengthen our resilience and defences. A weakness in one fund, administrator, bank, technology provider or common platform can quickly affect others.

These threats will undoubtedly require new and increased investments, especially for super funds that will only become more susceptible as more and more of their members start drawing on their funds in retirement. While important investments in areas like cyber may not show up in short-term returns on investment measures, the increasingly dangerous external environment we face necessitates these investments.

We should be prepared to consider whether any aspects of the current regulatory architecture disincentivise these important investments and I encourage you to let me know if you think there are areas where we do not currently have the settings right and where adjustments could be made.

Given the collective nature of these threats, resilience demands a collective or "Team Australia" approach, within superannuation, across the financial system and among the service providers on which the system depends.

Earlier this year, APRA and ASIC, with support from the Australian Signals Directorate, brought together more than 600 participants from over 380 organisations to consider the risks posed by frontier AI. One lesson was clear: awareness is no longer enough. Institutions need to know that their prevention, detection and response controls will work, and that they can manage a crisis and recover when threats move quickly through shared dependencies. Those discussions also demonstrated the value of sharing practical experience.

I also wish to acknowledge both the FSC and ASFA, for the recent progress in agreeing to work towards a single cyber playbook. This type of collaboration across industry bodies will be critical in ensuring a common response across the sector. This is what the national interest and a Team Australia approach demands.

APRA will continue to use its convening power to bring organisations together to collaborate on cross industry threats like cyber and frontier AI, and I am personally keen to engage directly with superannuation trustees and the FSC and other industry bodies to make sure that APRA is able to maximise its impact and avoid any duplication.

And that learning should flow across the financial system. Banks, superannuation trustees and other regulated entities all have experience to share, whether in cyber defence, fraud, identity protection, operational recovery or the safe use of AI. We should be sharing not just warnings about emerging threats, but what has actually worked and what has not.

That is what a Team Australia approach means: all making our contribution, sharing practical lessons, exercising our defences and preparing to respond collectively. No part of the financial system should have to learn every lesson through an incident of its own.

Building resilience against geopolitical shocks

In June, APRA published its first letter to industry setting out our minimum expectations for entities to strengthen their readiness for geopolitical shocks. Our recent Corporate Plan outlined our intention to undertake targeted readiness assessments of selected entities covering crisis preparedness, personnel risk and political risk. These are now underway across superannuation, banking and general insurance.

The targeted readiness assessments are about providing confidence in the preparedness of these entities and the system. Geopolitical shocks can escalate rapidly and create multiple, interconnected disruptions, making crisis preparedness essential to maintaining critical services and responding effectively under uncertainty.

In stage one, we have asked participating entities, including 12 of the largest superannuation trustees, to assess whether their existing arrangements would support an effective response to a "severe but plausible" geopolitical shock.

Entities will then be required to submit an action plan by the end of next April outlining how they intend to address any material gaps in their preparation identified through the assessment. By the end of November next year, we expect entities to provide evidence showing that identified crisis preparedness gaps have been effectively closed. Subsequent phases of the exercise will focus on assessing personnel and political risk.

Entities will develop plans and test capabilities through this exercise, but they need to maintain responsiveness and adapt as the external environment continues to evolve over time.

Delivering better results for members through improved investment governance

Another area of significant risk in superannuation is in investment governance.

The collapses of the Shield and First Guardian managed investment schemes highlighted this risk, where around $1 billion in retirement savings were lost. While this is a large number in anyone's language, we should never lose sight of the human impact of this loss. Behind this figure are nearly 12,000 Australians who - in some cases - after decades of hard work and sacrifice lost their life savings and their hopes for a secure retirement.

Three weeks ago, APRA commenced consultation on a package of reforms to uplift standards of investment governance across superannuation. The proposals build on several years of work by APRA's supervision, policy and enforcement teams to address weaknesses, particularly among platform trustees. The proposals have been informed by some of the lessons of Shield and First Guardian, but they are forward-looking.

While the Shield and First Guardian collapses have raised questions about many actors in the financial system - including the lead generators, promoters, ratings agencies and financial advisers - I will focus my comments today on superannuation trustees, who APRA regulates.

Despite APRA's extensive supervisory and enforcement activity, material weaknesses in trustees' investment governance practices remain and that is why APRA is proposing to strengthen trustee accountability and help ensure members' interests remain at the centre of investment decisions.

Trustees are ultimately accountable for the investments they make available to members. Investment choice must be supported by consistently strong safeguards, rigorous oversight and timely action when risks emerge.

The reforms will affect all business models, but they are expected to have a greater impact on platform trustees, because this is where some of the greatest risks exist, due to the broad and complex investment menus they offer and their greater reliance on third parties.

The new safeguards proposed would require trustees to do the following:

* To set and enforce member-level investment limits for higher-risk options - to avoid the catastrophic loss resulting from putting all of members' nest egg into the one "risky" basket, as happened to many in the cases of Shield and First Guardian.* To strengthen the management of investment related conflicts of interest to ensure that decisions around investment options are guided by the best financial interests of members.* To ensure their investment oversight capabilities and resources align with size, complexity and nature of their investment offerings.

In addition, we are codifying and strengthening existing expectations of trustees in relation to investment onboarding, monitoring, remediation, valuations and accountability.

Our goal through these reforms is not to deny choice for members, but to put sensible guardrails around that choice, which must be supported by effective trustee oversight, clear accountability and prudent investment governance.

Conclusion

My central message today is a positive one: Australia has built one of the world's most successful retirement savings systems and many of you have personally played a key part in that success. Our shared task now is to ensure that we maintain and strengthen trust and confidence in this system to deliver on the promise of super for all.

But this will require us all to do things differently. The ingredients of past success may not be enough to guarantee that we are ready to meet the challenges of a system moving into the retirement phase against the backdrop of intensifying threats from the external operating environment.

At APRA, we want to work constructively with the industry to help you to develop the skills and capabilities that will be needed to meet the moment and help ensure members receive the outcomes they deserve, particularly as they enter retirement.

It's up to all of us to ensure we lift to meet the challenges ahead.

Disclaimer: Curated by HT Syndication.