Australian Prudential Regulation Authority flags tenure limits for superannuation, bank and insurance boards

Australia’s prudential regulator has proposed a 10-year limit on board roles at superannuation funds, banks and insurers as it pushes to lift governance standards.

The Australian Prudential Regulation Authority’s proposal for a limit on non-executive directorship comes as its colleagues at the Australian Securities and Investments Commission grapples with what it claims are chronic shortcomings at some super funds and insurers.

APRA warned in a discussion paper released Thursday that overly-long board tenure was likely to erode “a director’s capacity to exercise impartial judgment and to challenge management effectively”.

If the proposal becomes official policy, it would force National Australia Bank to find a new chair next year given Phil Chronican joined the board in 2016 and put further pressure on Cbus chair Wayne Swan.

Mr Swan joined the industrial super fund as chair in 2022, replacing Steve Bracks after the one-time Victorian had served more than eight years as a chair and more than three years as an ordinary non-executive director.

Cbus non-executive director Anne Milner has been on the board since 2014 as a representative of the Master Builders Association, while Plumbing Trade Employees Union federal secretary and Cbus investment committee member Earle Setches has been on the board since October 2013.

It could also force changes at giant industry fund AustralianSuper, where Australian Industry Group nominees Innes Willox and Russell Maddox have been on the board since 2014.

Industry funds have long prided themselves on their mix of employer, union and worker representatives on boards that generally have far more members than equivalent-sized corporations.

The changes proposed by APRA could also force “significant” financial institutions to engage with the regulator on succession planning and appointments.

It said some entities would have to establish more robust requirements for assessing the skills and capabilities of their directors, as well as the fitness and propriety of these officeholders.

Some super funds had yet to establish risk committees, while others had boards that did not meet their own skills matrices — including having directors adequately skilled in key areas such as investment and risk management.

But APRA said these skills shortcoming were not unique to super funds, saying they were “present in all industry cohorts”.

APRA chair John Lonsdale said effective governance was fundamental to financial stability and sound risk management.

“The boards of Australia’s banks, insurers and superannuation trustees have enormous responsibilities when it comes to protecting the financial interests of households and businesses,” Mr Lonsdale said.

“Well-governed institutions are likely to be more resilient in times of stress, while poor governance can create weakness that leads to misconduct, losses and failures.

“It is no coincidence that almost 80 per cent of entities subject to heightened risk-based APRA supervision have underlying governance problems.”

Super Members Council chief industry Misha Schubert said her group would “actively contribute” to the APRA discussion paper, but said many of the improvements to practises were already in place.

“One notable omission that we’d urge APRA to highlight is the role of strong governance culture, values and board diversity — which are key ingredients in good governance and delivering for super fund members,” she said.

Other APRA proposals include extending existing requirements for super trustees in the management of conflicts of interest to banking and insurance.

APRA also wants to strengthen board independence, especially in relation to entities that are part of a group and clarify its expectations around the roles of boards, the chair and senior management

“While overall standards of governance have improved over recent years, we still see areas of weakness, including entities treating compliance with some requirements as a box-ticking exercise,” Mr Lonsdale.

“By articulating our expectations more clearly and strengthening our capacity to ensure compliance with them, we aim to lift governance standards among entities that are lagging best practices and bring them into line with contemporary expectations.”

He said APRA wanted to lift standards without adding the governance cost burden and argued most of the proposals would involve little change for entities with strong governance practices already in place.

The changes are open to public consultation, with APRA targeting a formal consultation period in the first half of next year before they come into force in 2028.