The prudential and corporate regulators lack the power to penalise banks that 'bundle' superannuation with other services, argues Industry Super Australia (ISA).
ISA chief executive David Whiteley said section 68A of the Superannuation Industry (Supervision) Act 2003 prevents banks from offering business banking discounts in exchange for access to employees’ superannuation.
But Arnold Bloch Leibler, a commercial law firm retained by the ISA to advise on default superannuation, argues there is no civil penalty for a breach of section 68A.
“Employees have little practical recourse if their employer is persuaded to switch their super to one of the bank-owned superannuation funds which, on average, have historically produced lower net returns to members.
“Given such deals are generally commercial in confidence, most employees would not be in a position to prove that incentives were offered to an employer to switch to a bank-owned product,” Arnold Bloch Leibler said.
The recent Financial System Inquiry recommended a review of penalties to ensure regulators are able to hold financial institutions accountable, Mr Whiteley said.
“It would obviously be in the best interests of employees to change the law to prohibit a bank-owned super fund from providing default super services where it is also the provider of business banking services to the employer.
“This would ensure some level of consumer protection for around eight million Australians who don’t choose their own super fund and rely on their employer to choose for them,” Mr Whiteley said.
The supposed ‘bundling’ of business banking has generated fierce debate between the ISA and the retail wealth management lobby group, the Financial Services Council.
Referencing a survey conducted by UMR earlier this month, ISA stated that 26 per cent of the 550 small and medium businesses surveyed reported that a major bank had approached them about transferring employees’ super to a bank-owned fund.
The survey found that 33 per cent of employers were persuaded to change funds.
Moreover, approximately 57 per cent indicated that they are still considering switching to a bank-owned retail fund.
The most common offers made by banks included discounts on business banking and insurance products, the survey found.