Senate Economics Legislation Committee, , 3:04:19 to 3:54:59
APRA examines housing market risks, including negative equity, mortgage arrears, and the valuation of illiquid superannuation assets.
Topics: Infrastructure, Public service staffing
Speakers: Speaker 18, David Bradbury, Senator Barbara Pocock, Senator Dave Sharma, Therese McCarthy Hockey, Interjection, Senator Deborah O'Neill, Senator Lisa Darmanin, Senator Matthew Canavan, Senator The Hon Tim Ayres
Okay. Um, I now uh welcome representatives from the Australian Credential Regulation Authority. I welcome Mr. John Lonsdale, chair of APPA. Um, I note we have your opening statement. All senators have had it circulated to them and um I would seek that this be tabled and we move straight to questions. We have it in front of us. Um if that is okay with you, that will assist us [clears throat] greatly given we are already significantly behind.
>> So I'm happy with that. Chair can table the opening statement. Appreciate that. Thank you.
>> Thank you very much. Uh we will go to Senator Canavan. Oh >> I'm I'm sorry. Can I just before we start that just to let people know who are following along at home uh that uh the committee has agreed to release the Commonwealth Grants Commission uh they may receive some questions on notice. So sorry over to you Senator Canavan.
>> Uh look thank you. Uh I just want to start with um >> [clears throat] >> uh recent data on um uh lending. Uh I believe recent appraata shows a record um of owner occupied home loans written with five deposit 5% deposit or less.
>> Sorry Senator, could you repeat the
question? So, well, I'll ask just ask what what is the current uh percentage of new owner occupied home loans written with a 5% deposit or less.
So as a point of context, maybe I'll start with uh the overall share of first home buyers, new commitments uh is 18.8%. So that's the overall first home buyers.
>> I'm not actually asking about first home buyers. Just asking what percentage of new owner occupied home loans uh were written with a um with a deposit of 5% I've got just for context I've got an article here from uh MPA mag which says new appraata shows low deposit lending has reached a fresh record with owner occupied loans written with a 5% deposit less accounting for 4.31% of all new lending in the June quarter. Just wondering is that I presume they're not making stuff like that up but I'm want to check it with you. Is that correct?
>> So the statistics So I I can take that on notice, Senator, unless we have it. >> I'll have to take
>> Do you collect data on on the percentage of loans that are low deposit?
>> We we do we do collect data. It is quite partial at this point. We collect data on owner occupied first home buyers uh above 80% um leverage 90% leverage and 95% leverage. So we actually have it disagregated. uh but it is it is partial because it it is only involves 12 ADIs that we're making the collection from which which is which is the bulk but I just want to >> uh correct in the numbers that we give you. So if we can just come back on that
>> I mean probably you probably know I'm obviously asking given there's been large scale large sorry large falls in property prices uh this year uh is anyone tracking this that what's the what's the trend in low deposit loans given uh some of these newly written loans now would clearly be in negative equity that's not something you're
actively looking at. So we are we are looking very closely at loans being written and particularly credit. Uh it is true if you look at the aggregate figures uh total credits I'm not talking just uh first home buyers here but uh all housing loans have come off in terms of growth uh but it is still good growth. So currently the latest statistics I have at August is 6.8 8% credit growth uh for housing. uh that's bordering on a strong figure like it is weakening
>> a single month
>> that is uh an annual figure but uh it is the momentum is moving down but if you look at the latest figures that we have in aggregate it is still very good credit growth we would say and so within that yes first home buyers is a category within that uh in terms of first home buyers, the proportion is roughly the same. Roughly the same.
>> Okay. I haven't actually mentioned first home buyers at all. I'm just I'm more interested in this issue of negative
>> on negative equity, Senator, we we don't collect statistics on negative equity. The Reserve Bank do. Our current understanding is that the level of negative equity is very low. >> Uh so around 1% that's my understanding.
So, the Sydney and Melbourne property price have gone down by somewhere like seven or 8%. Uh, and I'm just trying to understand is is there a record amount of low deposit loans being written right now? You can't answer that question.
>> uh, thank you, Senator. Uh so we look at the system and at the macrocredential factors and you're right housing prices we can see are going down but they are coming off a very robust um year last year and the previous year. In fact they aren't down at a national level um more than 12 months ago. They're not lower. So yes it's come off a a level that was elevated in the previous year. That's important for how robust the lending is. So not there is some recent borrowing um but actually the books in general uh have a lot of either prepayment or positive equity uh over time. So we are we do look at that from uh that perspective.
>> Yeah, I'm just a bit concerned this potential early warning signs not being looked at. I mean, >> pretty much the story of the global financial crisis was uh lots of low deposit loans being written um uh property prices fell >> and then there was a spiral. So, I'm not saying we're there yet, but I'm just a bit concerned then that this is not actually actively being uh uh looked at.
>> Senator, that's not correct. We we look at the housing market very very closely. It's a major part of the Australian bank's books. What we can say is when we look at the high risk lending that's being written across across all lending high debt to income lending is going and high LTV lending that's the second uh component that we look at would be broadly stable would say certainly over the course of the year but it is something that we watch very closely and you'll recall Senator that where we see a problem and we did we think we had a problem the beginnings of one at the end of last year this time last year where we start to see uh upward pressure uh upward risks on housing uh we put in place the guard rails on high DTI lending so it is something we watch and it's something that we react to where we see a problem
>> what's happening with the ratio of mortgages in a re uh for 90 days or more has that been increasing
>> so that is a the aggregate that we look at. So the latest statistics uh if you look at non-performing loans the ratio uh it's around 1% and it has been very stable I would say over the last 12 months
>> has it increased in the last two quarters.
>> Uh so the latest statistics I've got is at June 26. So it's not it's not the latest month but we do talk to the banks anecdotally. We are watching very closely not only non-performing loans but delinquencies if you like where there is a problem before the 90 days. Um so we we're closely watching the employment market which would drive uh a problem in that area but at at this uh non-performing loans on the books of Australian banks remain very low.
>> Can I just go back to my question? Has it increased in the last two quarters? Has the number of the latest and I was asking about 90 days or more. the
>> Yeah. So the latest figure on days past due in the 30 to 89 day bucket.
>> Well, I I was going to come to that but okay go there. I did ask for 90 days or more but okay.
>> Yeah. But that's 54. They are ticking up there and there are there are elements of some greater indication of hardship coming through. So that's what's talked to us about the banks talked to us about that. We see a little bit in the data. But what's happening is that they cure. So the bank the the mortgage is coming to the bank and they are working with the bank and they're curing that um and I think is underpinned by that good employment figure. So we're not seeing it deviate in any real way. I would say it's sort of broadly stable with a small uptick but getting that they they
>> can I just can I just get the figures then for mortgage by 90 days or more on a quarterly basis for the last year. So
what was that? So the figures I've got in front of me, Senator, are total housing non-performing loans. So it's across what's so that is one bit over 1% 1.01 as
>> that's what I've got too. I think that must be the 90 days or more.
>> Yeah. And
>> and so what was it in March?
>> So in March it was.99
>> and what was it in January? uh in
December 0.99
>> right
>> so the story is very slight uptick but from a very low base right it is it is pretty stable
>> um uh are you aware of the Roy Morgan survey that's done um on uh the risk of mortgage stress >> in August this year it reported that the 32.3% of mortgage holders are in mortgage stress Yes. >> And that's up eight points from the beginning of this year.
>> Yes.
>> Do you look at that?
>> Yes, Senator.
>> Um is what what's if if you're saying the your figures are stable, how come there's a very large increase in the numbers of people reporting mortgage stress?
>> Well, I think it goes to Miss McCarthy Hawk's point that there are certainly cost of living pressures uh in the community. Uh there is certainly mortgage stress in the community. Uh but how much of that actually translates into a non-performing loan uh is something different. [clears throat] And what the banks are telling us is that certainly over recent years customers who are experiencing mortgage stress are going to the banks earlier. Uh they're talking about possible options. Uh rep repayment plans are being worked through. uh and there's a much better triaging of uh mortgage stress than was
>> Okay. All right. I'll leave it there for now. Thank you.
>> Okay. Thank you. Um Senator,
>> thank you. Um I wanted to go to uh new loans. Um, and I think your data shows that between June 2025 and June 2026, the share of new loans funded for investment increased from 34.1 to 35.6%. So very slight increase. Uh, while the share for owner occupiers fell from 63.6 to 61.9. Have I got that right?
Uh I think they are broadly correct. >> So the latest figure, can I give you the latest figures I've got? So >> I have the June 26 figure. So for investors the share of new commitments excluding refinancing 38
>> is 38%
>> percent. >> Yeah. And then for owner occupied share of new commitments 62%.
So what do you what do you think's happening in the last few months then?
>> Uh so the broad story senator is that uh well as I said to the other senator we're watching housing very closely. There is a material downturn in the market. uh we're seeing that across all major cities. Now, housing credit growth has declined in aggregate. So, uh I'll just get you those figures cuz it's an important one. So, if we were sitting here as we were this time last year, we were close to 8 7.7 uh for housing growth. We're now at 6.8. So, it is falling. We'd expect it to
fall. >> They're annual rates of growth. That's
annual rate, >> six month annualized rate, >> but we'd expect it to continue to decline because the forward uh forecasts that we're hearing from the banks in terms of applications would suggest that. And if you look at all the four major bank forecasts, they're between five and 4% credit growth next year for housing. So, we expect that to keep happening. But within that within that decline, what we're seeing is investors pull back further
>> what's your commentary on what's happening for first home buyers and can you make any commentary alongside that about what's happening for young first
So, it is something that we watch. Um, we've got a little bit of disagregation, but not a lot of disagregation. For first home buyers, as with other uh credit growth numbers, they have come down. But when you look at the share of new lending, describe it as stable or trending up at the margin. So let's go for stable. Within the loans that are being written, there's a variety of leverage. So we're collecting data on say the pool above with a 20% deposit or less. So that's the bulk through to a 90% LTV and a 95% LTV. Uh I think although the data is incomplete as I was saying before it is partial I think there's a trend that we're watching that there is a move a higher higher growth rate more we've got more and get this right we've got more first home buyers moving into the 95 90 and 95% category than in the 80 if that makes sense. So they're moving up in leverage.
>> I wonder if you could give us that in writing on notice. It's very hard to absorb verbally, but thank you. >> Um, your June 2026 data shows that 8.9% of new investment loans had a debt to income ratio of six times or more compared with a much smaller slice, 3.7% of new owner occupier loans. Why are investors more likely to take on higher
so they're more likely to take on than than another class of borrowers
>> than the class of owner occupiers.
>> So the typically a borrower who is purchasing with another with another asset. So they can leverage y >> more high have more highly leverage for
debt. So, how do you see the advantages that investors get over first home buyers when buying a home because they're able to and more likely to have that higher ratio of debt to um uh income?
>> Well, I'm not sure that's something we look at specifically. Uh we're looking at it more from the risk perspective. And as we've talked before, >> there are the two dimensions that we're focusing on. So, it's the debt to income story, which was the investor story, but also the high LTV story, uh, which is typically a first home buyer issue. They're they're the two probably categories of risk that we're we're watching most on the high risk end.
>> Okay. Um I'm interested in uh whether APPA would support a change in your mandate and I'll come to you minister on this also requiring to consider the implications of its credential settings for housing affordability and access to home ownership for owner occupiers. The point I want to make is that housing credits and the way it's shaped is not neutral. who gets access to the finance and whether it's supporting owner occupiers or investment. It it has a very big impact on who gets a roof over their head and how much buyers can bid. I'm asking you your view on that.
>> So Senator I don't want to comment on uh what is a policy issue that is a policy issue for the government and the parliament on the mandate of the regulator. Uh what I would say though is that housing is uh a big topic that it is not just appa involved in housing. So um I would counsel you to think about that and also there are a lot of competing uh priorities for a regulator to do. So it's not you you have a particular um idea for a mandate extension. There are actually other ideas as well and uh one thing to think through is you you can actually have too many ideas uh for a mandate for a a mandate that can pollute the key mandate which is safety. So that would be my one council in thinking about uh a mandate change. We
heard evidence uh recently in our select committee on intergenerational housing inequity that your restrict app's restrictions on intereston investor lending between 2014 and 2018 shifted lending towards owner occupiers. So Minister, I wanted to come to you. Do you accept that credential regulation can influence housing affordability >> given that example I've just given when it certainly made a significant
Just want to be care I guess careful in the in the in the response. Certainly the the shape of credential regulation in Australia [clears throat] and the the lending behaviors uh that that uh influences of course have an impact in the market in terms of who is um more likely to you know what cohorts of people are more likely to purchase just their first home. Uh and and also as I think you you are indicating uh shapes uh investor behavior too beyond uh beyond the first home. Uh credential regulation has of course um multiple purposes and um for for those of us who are around um when we watch the impact of behaviors in other economies where the credential regulation system was not uh uh and that um that caused um you know very significant economic damage including to uh to people who uh were homeowners and that spread around the world. Uh one of the sources of strength for Australia was our credential regulation framework. Um I listened carefully to what Mr. Lonsdale said uh about you know how you shape a credential regulation scheme and be kind of alive to if you're trying to achieve too many objectives uh do you undermine the the kind of principal objective and I'm not aware of any there may be I'm just not aware uh of any uh active work that's going into uh shape it in that way but those are the kind of considerations that we would be um that we would be alive too.
>> Thank you. I I think yeah just to complete this um Mr. Longdale has pointed to the possibility that a range of levers are out there including some in the control of the credential system. Uh does the government consider or are you asking APPA I think it would be useful if you did to examine options that prioritize owner occupiers over investors purchasing their sixth or seventh or 10th property. I mean, we we obviously want a secure financial system, but we have a major housing crisis that's the certainly the worst in any of our lifetimes. So, we need to obviously weigh up policy that keeps the system stable, but also deals with the fact that there are thousands and thousands of Australians who can't afford their first home.
>> Well, can I offer maybe two two responses? One is I I'm sure that uh the uh the assistant treasurers and the treasur and the government are engaged with Mr. the lonel and his team uh you know very thoroughly. If there's anything I can add in terms of um active consideration of of any of these issues um we we'll we'll take that on notice. this is a government with a big agenda for delivering real change in the housing market. Uh we've made changes uh in the taxation arrangements for uh investor owned properties. uh they have been the subject of very vigorous contest but you know we have made them uh we have a very expansive program of funding and supporting the provision of social and affordable homes. Um I know that there's disagreement um about the scale of that uh with with amongst you and your colleagues, but it's the biggest thing that Australia has seen uh in housing construction of social and affordable homes for generations. Um and we have um uh a 47 billion scheme more broadly. We're funding infrastructure for housing. where we've opened up the 5% deposit scheme to give more Australians access. Um, I don't want to go through the whole list, but just make the point that we are we are fully engaged in as many levers as we can grab hold of to deliver real change for
>> The point I'm making, Minister, is that there are other levers in in the credential system that have been used before that are not being used now. We have got a massive decline in the proportion of 20 and 30 year olds who are in the business of buying their own homes. It is a historic shift. Uh we've got 31% people renting. They're renting for long periods of time. Many of them in deep housing crisis. Uh and when we look at the actual new builds out of your government program, 1,47 buildings out of the future fund. Way too slow, too small, too complicated. I'm just keen to see that we find ways and the government explores ways that are there that um are available and should be exercised. Thank you.
>> Thank you, Senator Senator Sharma.
>> um I had some questions that I asked that um our C4 which may have heard about um your ability or regulators ability more broadly to stop or prevent um RSC's from accepting new members if there are concerns about their solveny or liquidity. Asich took the question on notice, but they suggested that you might also have answers. And um my reading since suggests that you do have some powers available to you at least I think under section 29 EA amongst others of the SIS act to prevent this from happening. Um has um has APA used those powers in the past and not as uh with RSC's and would you mind just providing a few examples?
>> So thanks Senator. I'll ask um our new deputy chair >> Mr. Bradbury uh if he can comment on
>> Thanks very much. Uh thanks chair um David Bradbury deputy chair of APA in terms of the use of those powers. Um we'll come back to you on notice in terms of the uh extent to which those powers have been used. Um would it be helpful to provide a little context and background around those powers? >> Yes, sure. So um in circumstance there are a whole range of circumstances that might warrant um us considering the exercise of of those powers and there are a range of powers that extend from uh issuing directions uh through to I guess the most extreme version of those powers would be to cancel the license of a lency. Now obviously um that more extreme version is something that we would be um reluctant to do unless a very high threshold were to be met uh because of the impact on members of uh intervening in that way. Uh in terms of the um other powers that we have along the continuum up to that point, uh we will need to consider on a case-byase basis um what the situation is, the extent to which there might be potential harm uh to members uh and we would take a decision based upon all of those circumstances.
>> Okay. Um look uh and you don't need to answer this today that you can take it on notice. I'll just put it on the record. Um there's one trustee in particular I'm concerned about, Diversa, um that's facing um significant legal claims against it, much larger than its um its equity holdings and with an ownership structure that would um potentially limit the recovery of monies. Um so I would like just to put on record if um my request that app consider the exercise of its powers with respect to that particular entity um with a view to the risk of you know governance and other failures that might compromise new members. Um on um Diversa I think you appeared before corporations and financial services on the 4th of September and you would have heard divers's public testimony. Then um APPA has opened and you'll forgive me if I don't get the terminology correct here but um you'll need to provide me with the terminology. Uh you looking into their executive remuneration
>> formal investigation.
>> Formal investigation. Okay. Um so when APPPA appeared before that committee on the 4th of um 4th of September, we asked specifically um whether the 2026 remuneration for the senior management team had been um finalized yet and uh the chair of um Diversa said there had been preliminary discussions but they are not yet finalized. Now, I noticed in a public report that's of dated the 15th of September, and you might have seen this as well, um the bonuses for key management personnel for the 2026 financial year have been finalized. And um Mr. Peterson, the CEO, uh has received a cash bonus of $331,000 and a deferred bonus of $221,000, so $552,000. Firstly, is it possible is it physically possible for APA to have not made a decision about executive remuneration on the 4th of September, but then on the 15th of September having been able to announce a finalized executive remuneration decision. My concern is that they were not being transparent or truthful with their appearance before the Senate committee on that day. Second question, um will this form part of your investigation into their executive remuneration, the 2026 bonus?
Thanks very much, Senator Sharma. And um some of the issues that you ask about go to um regulated entity specific matters that we are not in a position to to speak to uh because of our confidentiality obligations, our secrecy obligations under section 56 of the act. Um but on the general proposition which goes to the second question about the scope of any investigation um what I can do is to add to the public statements that we've already made have already been made in indicating that the scope of that um would not be contained to any one financial year. >> Mhm. And to the extent that other remuneration decisions have been taken outside of the the year that might have prompted the initial investigation, uh they will be the subject of that ongoing investigation.
>> So they are within scope. Yes, indeed. Thank you. Could I ask that you um you don't again you don't need to provide an answer but the question around the timing of those decisions as well and particularly whether um divers's um testimony to that committee on the 4th of September was accurate at the time because that would be a concern of us all as a as a committee. Um and then what is um what is the understanding your understanding of um APA's powers under section 131D in particular to direct a trustee either to take a decision or to facilitate a decision um when there is an application before them for a successor fund transfer. I've had a look at the provisions of the legislation, but obviously I'm not an expert, and I'd appreciate your your view on what AppPa's powers are there.
>> Uh, thanks, Senator. And, um, I'm not um our general counsel, who unfortunately is sick and not able to be with us today, but I can speak more generally to um the the scope of those powers uh, as I'm advised, uh, that they go to our ability to require a decision to be taken. Um, but they do not. And um the clear advice that I have is that we do not have the ability to direct a trustee uh to affect that transfer of members. So there is an important distinction uh in our understanding of how that particular power can be exercised.
>> Okay. But you can compel them to take a decision. Is that right? So if if you have a situation where there is an application before um uh an RSSE and for their own commercial reasons they are seeking to delay or prolong or frustrate through uh you know um exhaustive correspondence and nitpicking requests for further details. Are you able to issue them a direction to um conclude those matters and reach a decision in the best financial interest of the
We are a couple of additional words of context that um before a transfer can affect can be affected in um two different ways. >> Um one a successor fund transfer and the other a deed of retirement and appointment. Now neither of those avenues can be pursued until certain conditions have been met. uh and they require uh the trustee to whom the request is being made to move the members that that trustee is licensed uh by >> APA. >> Um secondly, the fund that the trustee um manages also needs to be authorized. Um and then thirdly to the extent that any of the members have funds in a my super product uh there would also need to be an authorization of a my super product. Now in the particular case that you're referring to um it's only recently been the case that the third of those conditions has now been met. >> Yes. Yes. And as you point out, in addition to those conditions, it is a matter for the trustee to in exercising their judgment to uh meet the statutory obligations that they have in acting in the best financial interests of their members.
>> And the third condition has been met. The second condition is also Yes. >> That's right. Okay. >> All right. Thank you. I had no further questions. Thank you for um your evidence today.
>> Thank you very [snorts] much. Um I've just got a couple quickly about um the role of um APPA um when major banks undertake restructures. So you might have seen recently for example the NAB's announced announced a very large restructure involving up to two and a half thousand fewer roles by the end of next financial years. So just from your perspecting perspectives, I was wondering um whether you receive information um in this case NAV but in general in terms of our major banks um do do you receive communication about these sorts of changes and then you know what if so what sort of information is that? Um just thinking about you know how you think about the risks.
>> Thank you Senator. uh so again I don't want to talk specifically about you can
talk but I think I can answer it
speaking generally so uh certainly where there is a significant uh change to an entity staffing would be an example of that uh we would expect to be told and we'd expect to be told before uh that event happens uh I just think it's important to make clear that We don't regulate uh staffing. >> Uh they are decisions for the entity itself. >> But we are very interested in uh the governance around uh particular risk issues. Uh we're very interested in uh if there were cuts made to areas that we were particularly concerned about. for example, risk compliance would be another one. Um, so it is something that we take an interest in and it's something that we certainly want to understand
and so yeah. So, so are you saying then that like your areas of focus generally are around um governance, risk and compliance that sort of what is within your purview as opposed to a broader um you know loss of institutional knowledge or um uh specialist expertise more broadly across the workforce?
>> Well, I think that they're linked, Senator. So, we we would be saying um [clears throat] you know, if there are well, let me put it this way. we are requiring uh management to meet certain um metrics that we need met. Now it's up to them as to how they they meet that. Um but certainly that would be a routine supervisory question for us to ask well if the capability is no longer there or doesn't appear to be there how are you meeting that? So that would be a normal thing that we would uh ask.
>> Yeah. And is it um routine that um you would uh you would have that engagement or you know are there times when you need to follow up because you've read in the media what's going on?
>> Senator um that uh we would expect as Mr. London already pointed out that that would be advised to us >> in advance. We have as part of our expectations is for entities to be open and transparent with us uh about their activity. Um I think there's two things I'd like to make a point around. One is the breadth of organizations that we supervise. We have one authorized deposit taking institution license category but actually that's very broad. It can be a very big bank, can be small, can be digital, can be a foreign bank. Um so we have a great variety of um organizations that operate under that license and we do leave it for them to determine that. And I think the very interesting thing in a world we live in today, the use of third parties uh really means that um and you can see it in our standards that actually the thing that's just in front of you, the the shell of the the bank or the insurer, the super fund um actually uh the way they use third parties and the breadth of those and they can be onshore and offshore as well. So to we would we we do determine that they would be thinking about um the the the the way in which their operations work and the risks in that operation. The second thing I just wanted to say to you is we don't just look at risk and compliance. We do look at what is your strategy and how are you positioning your organization. um how do you uh make sure that it's fit for purpose through time that it's run on an end to- end basis um that your credit decisions are then um you know um they work uh at the point of origination but actually through the life we determine that you know how they support um you know hardship and uh some of the processes that go behind the risk management. So we really are looking at and we do do request uh at the board level and at the senior executive level the overall strategy for those organizations and the the role they play and that they can do that in a safe way.
>> Yeah.
>> So it wraps up into an overall safety. The critical thing about have you got the right risk capability, compliance capability and numbers. Yes. Uh but it's about capability to to do the business they plan to do which is varied and broad.
>> Yeah. Yeah. Thank you. Appreciate that. Um I will share the rest of my time with Senator. [clears throat]
>> Thank you. Just a quick follow up on the line of questioning um opened up in this session by Mr. Sharma. Diversa as I understand it is actually facing an ASIC claim 30 times larger and there are several ASIC investigations into misuse of members money and the appro remuneration investigation has already been discussed here into the CEO bonuses about which the committee has grave concerns frankly uh there's licensing conditions um imposed as late as 2025 do you know if diverse is accepting new members into the fund and do you have a
>> Thanks very much Senator. Um I don't know whether they are currently accepting new members into the fund and we can um make investigations uh and come back to you on that. A couple of uh points that might be relevant in thinking about how we would consider um that prospect. Firstly that um whilst it is true all of what you have described about the context is correct um it's also true that there are a range of uh of members within funds uh for which diversity is the trustee uh that are continuing to um benefit from returns that are being generated across a whole range of different products. Um and um in in circumstances such as those um we would be um cautious about considering whether or not there might be any um need for us to intervene uh in a particular case such as that. I think the the other point that I would observe is that um in the circumstances that you've described um we are also we have a whole range of um issues that arise in one of the standards that we have which is um CPS 190 which is the recovery and exit planning standard. uh and you would expect that we would be engaging with an entity in circumstances such as these uh on an ongoing basis. Uh perhaps for completeness just a couple of additional um comments and that is firstly to acknowledge that um this is a legal case and none of us can presuppose what the outcome of the legal process will be. Uh we are aware from public statements that Diversa has made that they will cross claim against other parties that they will deny um and defend the case. >> Uh we also know that they are um alleging fraud uh against a range of other parties. >> Uh and we are also aware that there is insurance. they have some insurance um or or or or be it potentially not sufficient to cover a claim of the size that they're currently facing. So I think all of that is really just to acknowledge that uh the concern that underpins your question is a legitimate one around uh the mismatch between the size of this claim and the assets that they have at their disposal. uh but there are a whole range of complexities that we should be very careful about not jumping to conclusions given that there are legal processes that need to play out and and they will um for for better or for worse they will take some time uh to work their way through the courts I
indicate that we've been hearing a lot about superhero as one element that's sitting in under the divers umbrella um today it's being confirmed that the three criteria for superhero to sit separately are now complete. Um I think on the evidence that we've received which you may have more insight into there's been a uh if I could put it in this way a game of cat and mouse arguments been put to us about significant delay you know can uh can the board of divers of divers frustrate an attempt for a request for exit? Do they have to have meetings in a timely way? Are there any covenants protections uh in a circumstance where there's a contested departure you know like rules around divorce if I could put it in that way for the financial separation.
So there there are a number of considerations that are worth uh raising at this point and the first one is that uh it is open to any member of um one of the super funds for which divers is a trustee uh under our choice arrangements within the architecture of our system uh to move their funds to another superenuation fund. Uh so they can do that and um that can happen as quickly as within a matter of days uh if they go through the proper process like any individual member of a superanuation fund looking to move from one fund to another. Um what is different and what is sometimes obscured in some of the discussion around this particular case is that superhero would like to take a collection of members and on mass move them to another fund. And uh that is more complicated. That requires uh a a different legal approach that um is is just something that takes a little bit longer. And ultimately uh under our arrangements it comes down to a decision of the existing trustee um to be willing to to to grant that pathway. >> Uh I mentioned before successor fund transfer or a deed of retirement and appointment. >> Uh now in terms of um some of the additional considerations that are worth putting on the record. >> Um it is not in answer to Senator Sharma's question. I made the point that there were some formalities that needed to be met before this would even be possible. And and as recently as I think the decision on the final step was taken last Friday, >> last week um those conditions have been met. But separate to those conditions from our perspective we will also pay due consideration um when reflecting on the extent to which we may or may not get involved in that matter. We will be very focused on who the trustee to whom uh the request to transfer is and the extent to which we are confident uh that they are in a position to meet all of the requirements that we would expect of a trustee doing uh their performing their functions in uh with the degree of due diligence and um care and skill uh that we would expect in the benefits of members. So just to be clear about that the legal requirements that may have been met to now have a situation where diversa needs to make a decision they need to make a decision under legislation based on the best interests best financial interests of the members. Um the suggestion was that we in some way get involved to direct a decision to be taken. The considerations that we would take into account before um making any such decision would be to also look at who is the trustee to whom we're talking about moving the members and are we confident that this is going to be in the financial interests of the members and we have not undertaken uh any detailed assessment or analysis around those elements uh except to make the observation that we have also announced proposed changes to investment governance uh that will strengthen the way in which um the expectations that we have on trustees and we expect that that would be the case not just for existing trustees but obviously we'd be looking to this particular trustee or trustees to ensure that we're confident that they are in a position to meet those requirements.
>> On notice if this has happened before could you just provide the timeline in which such a transition did occur? Thank you. Thanks.
>> Thank you. Now I'm told Senator PCO you have one final question if you could be as quick as you can on just very quick.
I asked ASC earlier about um the uh concerns they have about $80 billion in illquid illquid superanuation assets where the auditors have obtained limited or no supporting evidence about the reality of those. I I'm I want to know what your whether you share that concern about that basket of assets. Um are you concerned about the accuracy of corporate or superanuation fund financial reporting where that relies on an internal management assessment um whether it's internal audit tax or valuations that are dodgy and
>> Thanks Senator PCO. We have uh as part of our corporate plan, we foreshadowed uh a stream of work that goes directly to this point and that is that we have uh commenced a process of identifying a number of trustees um and we are working with them um requesting that um we have an independent expert to review the valuation frameworks that they have in place uh to help try and get to the bottom of some of these issues. I should make the point just more generally that um unlisted hardtov value assets uh can include a whole range of different um assets um and and by and large uh they account for a share um of the overall portfolio. If you think about something like private credit for example which is a specific area uh that has been the subject of a lot of discussion recently private credit accounts for about 2% of the assets within superanuation funds. So it is a relatively modest amount. uh from a system level it is a small amount but of course as we've seen from recent instances that uh the impact of that can be felt very directly by a small number of people if people's funds have uh direct exposures and concentrated exposures to that type of risk. So we are as you would expect uh through our supervisory work we are staying on top of this and working with trustees to understand the extent of those exposures noting that you know we don't go down to the product level we are regulating at the trustee level but we are asking them to be more transparent with us about those exposures
>> and beyond superanuation Mr. Lonar the broader issue of dodgy assets in all kinds of entities. Is that a concern for
>> Well, I don't know whether we can comment on that, >> Senator. I mean, it largely shows up in the superanuation work that we're doing, but yeah, I can't comment beyond that.
>> Thank you, and thanks for your answers.
>> Thanks very much everyone. Um that concludes our session with APPA and we'll take a very short break while we invite the next witnesses the Australian Bureau of Statistics to the table