• University of New South Wales
  • Macquarie University
  • The University of Sydney
  • University of Technology Sydney
  • Australian National University
  • The University of Melbourne
  • Capital Markets
  • Sirca
  • Commonwealth Bank
  • KPMG
  • King & Wood Mallesons
  • Macquarie
  • Australian Government - Treasury
  • New South Wales Goverment

CIFR Research Project

Identifying, Monitoring and Managing Systemic Risks in Australia’s Superannuation System - E033
Area of Interest: Systemic Risk, Completed Projects  Lead Institution: UNSW Australia
Assessment Round: November 2012  Completion Date: 2015
Project Summary

The funds, entities and regulators in the Australian superannuation industry comprise a system that is complex and dynamic. The differentiation between roles and the distribution of responsibility amongst a large number of entities provides the system with a measure of resilience against the local failure of any one entity. However, the interconnections that bind and constitute the system also have the potential to transmit risk. This creates the potential for the impact of local failures to propagate in ways that pose risks to the system as a whole.

Using a dataset of 200 Australian superannuation funds, this project mapped and analysed the sources of these endogenous systemic risks in the system.

The potential for linkages between entities in a financial market to facilitate cascading risk and other complex system dynamics is now well understood in the global banking domain. The prevalence of trust-based legal architecture in private pensions systems such as the UK, the US, Canada and Australia has discouraged close attention to whether similar dynamics might be possible in these systems. A trust structure, in theory, quarantines the assets of the fund from the sorts of contagion that make cascading risk a threat in banking systems.


The research demonstrates that superficial assessment is inadequate. The linkages between the service providers employed by the trustees in the superannuation system provide a conduit for the transmission of risk across the system. This occurs in part because of concentration in the industries from which those service providers are drawn, and in part because the quarantining of financial risk brought about by the trust structure does not mean that functional disruptions, especially delays in managing cash flows, cannot occur.

Our research also highlights that close attention to the detail of the links between these entities is crucial to understanding the potential for transition mechanisms to operate. In particular, analysis must move beyond characterising the links as simply ‘trust-based’ or ‘contractual’. It must also recognise the role played by contractual terms in limiting or conditioning the liability of each of the parties.

The research suggests that the following policy and regulatory responses should be considered:

(i) That APRA’s supervisory mandate be expanded to include a wider range of entities crucial to the smooth functioning of the system, most especially member benefit administrators;
(ii) That APRA design and implement processes capable of identifying, monitoring and addressing the risks to the functioning of the superannuation system posed by supervised entities and their activities;
(iii) That competition regulation of the service providers is particularly important, given the dependence of the system on a few key functional nodes; and
(iv) That APRA’s supervision of vertically and horizontally integrated financial services groups (including banks) accord greater attention to the role played by group companies to the smooth functioning of the superannuation system.


This research has been presented at:

21st Superannuation Researchers Colloquium

Sydney (July 2013)

Paul Woolley Conference

Sydney (October 2014)

CIFR Symposium : Systemic Risk Stream

Sydney (August 2013)

4th Annual ERISA Scholars

Philadelphia (March 2015)

CIFR Workshop: Financial System Inquiry

Sydney (May 2014)

The Commonwealth Treasury

Canberra (May 2015)

22nd Superannuation Research Colloquium

Sydney (July 2014)

Policy Applications of Complex Network

Spain (June 2015)

19th Melbourne Money Conference

Melbourne (July 2014)



Team Leader:
Dr Scott Donald | Senior Lecturer, Faculty of Law, UNSW Australia
Associate Professor Hazel Bateman | Associate Head of School, School of Risk and Actuarial, Business School, UNSW Australia
Professor Ross Buckley | Scientia Professor and CIFR King & Wood Mallesons Chair of International Finance Law, Faculty of Law, UNSW Australia
Kevin Liu | Lecturer, School of Risk and Actuarial, Business School, UNSW Australia
Dr Rob Nicholls | Research Associate, Faculty of Law, UNSW Australia
Project Outputs:


The Centre for International Finance and Regulation (CIFR) represents a strategic link between academia, financial regulators, policy makers and industry, promoting financial sector vibrancy, resiliency and integrity, through leading research and education.

CIFR receives funding and support from the Commonwealth and NSW Governments, and its industry, university and research centre partners.



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