APRA intensifies supervision of fund level expenditure for RSE licensees

On 22 October 2024, APRA released a letter to all RSE licensees warning that increased supervisory attention will be given to fund expenditure where the benefit to members is not immediately apparent or reasonably justified. APRA noted that it will be taking a targeted supervisory approach in the following areas having observed deficient practices and questionable expenditures of RSE licensees:

• Discretionary expenditure categories such as travel, entertainment and conferences;
• Relative and absolute size outliers, including consideration of impact to members;
• Particular types of payees and payments where benefit to members is not immediately apparent.

APRA does not intend to scrutinise all reported expenditure items but rather the focus is to supervise items of expenditure where there is potential for improved practices and outcomes.

APRA has indicated that RSE licensees can now expect the following actions:

1. Issue of notices requiring RSE licensees to provide information on how they determined that particular expenditures were in the best financial interests of members. This may also include a review of decision-making processes, practices and outcomes and monitoring and oversight of expenditure related transactions and expected outcomes.
2. Where deficiencies are identified, APRA may enforce rectification measures and make such enforcement actions public if appropriate to do so.

Whether fund expenditure refers to expenditures out of fund assets or the expenditure of trustees more broadly has not yet been clarified. We consider that there is scope for APRA’s position to evolve so as to subject trustees’ expenditure out of personal assets to regulation, particularly given that APRA may take the view that any expenditures out of personal assets may be passed on to members through higher fees but at this stage, RSE licensees should take an inclusive approach and be weary of expenditures more generally until further guidance is released.

Recent SPS 515 amendments

APRA’s letter comes just a few months after the introduction of new amendments (effective July 2025) to Prudential Standard SPS 515 and Prudential Guide SPG 515 (Strategic Planning and Member Outcomes) which have the overarching goal of ensuring RSE licensee’s deliver outcomes that are in the best financial interests of members. Adherence to SPS 515 and SPG 515 will be important given APRA also stated in its letter that RSE licensees will be assessed against the standards under SPS 515 and SPG 515 (among other factors) in its review of expenditure practices undertaken by RSE licensees.

SPS 515 provides that an RSE licensee must ensure that its expenditure decisions are for the purposes of the sound and prudent management of its business operations and are consistent with all legal duties and obligations of the RSE licensee, including the best financial interest duty and the sole purpose test. A key change for expenditure management in SPS 515 included the removal of the ‘significant’ threshold to ensure that all expenditures regardless of whether they are significant or not are captured by the requirements of SPS 515. This amendment was made despite some submissions during the consultation period suggesting that justifying all expenditures to the same standard may be onerous on RSE licensees. APRA noted in its response paper that this amendment was necessary in aligning expenditures with the best financial interests of members further asserting that it expects RSE licensees would have adequate procedures, frameworks and policies in place to monitor and assess various expenditures.

SPG 515 was also amended to provide further guidance on APRA’s expectations and the types of practices that would assist RSE licensees in meeting the standards of SPS 515. In particular, APRA’s position under SPG 515 is that better practice would include attestations from senior management that the requirements of SPS 515 are being met. SPG 515 further provides a non-exhaustive list of expenditures that would likely be unjustifiable as being in the best financial interests of the member. The examples of likely unjustifiable expenditures include political donations, payments to related parties that are not arms’ length or sponsorship and marketing that do not have a clear financial benefit to members.

What’s next?

APRA’s scrutiny of fund expenditure and its intention to increase transparency across the industry is not new and has been an integral part of its 2024-2025 Corporate Plan. The trend that is evident so far in particular is a scrutiny of marketing, advertising and sponsorship budgets and whether these expenditures ultimately support members’ best financial interests by increasing the size and engagement of a fund’s customer base, or even improving informed customer decisions.

RSE licensees should also be aware that APRA Deputy Chair Margaret Cole at the AFR Super and Wealth Summit 2024, stated that APRA has enhanced its data collection capabilities allowing them to have greater oversight over trustee expenses information.