New legislation has passed through the government giving APRA stronger powers to take action against the trustees of underperforming super funds.
The Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No 1) Bill 2019 passed both houses today and provides APRA with long sought-after directions power.
It gives APRA the power to take civil penalty action against trustees and their directors for breaching their obligations to members, including the best interests duty.
The new powers were recommended by Commissioner Kenneth Hayne in the royal commission final report and significantly strengthen APRA’s ability to improve member outcomes.
APRA’s deputy chair, Helen Rowell, said the legislation strengthens the authority’s ability to address underperformance and drive trustees towards improved outcomes for members.
Previously, APRA could only direct a superannuation trustee after a contravention of the law had taken place, or where APRA believed there was an urgent, material threat to members’ interests.
“The new directions power gives APRA the ability to intervene at an early stage before members suffer significant harm,” Ms Rowell said.
Ms Rowell said the new civil penalties that may be imposed for breaches would include both civil and criminal consequences.
“This, combined with the broader directions power, gives APRA much greater leverage to influence trustee behaviour from the outset and to push trustees to meet their obligations to members under the law,” she said.
Ms Rowell said that sometimes acting in the best interests of members would mean exiting the industry or merging funds.
“If trustees and trustee directors are not willing or able to meet their best interests duties to members, they should be prepared to face serious consequences.”
The chief executive of the Association of Superannuation Funds Australia, Dr Martin Fahy, told Investor Daily that the association supports removing habitually underperforming funds but was cautious about the unintended consequences of the new powers.
“ASFA supports the removal of a small number of habitually underperforming funds from the superannuation system, but cautions that ‘underperformance’ needs to be carefully defined with respect to funds’ risk profiles and long-term investment objectives, to avoid unintended consequences,” Mr Fahy said.
“Additionally, underperforming assets should not simply be forced upon the members of high-performing funds, so consideration needs to be given to determining an orderly mechanism for transferring these assets.”
The new outcomes assessment requirement is consistent with APRA’s recently released member outcomes prudential standard and the authority is considering what amendments need to be made to that standard to accommodate the new legislation.
The new legislation will also give APRA new powers around RSE licensees and empowers the authority to collect expenses data relating to the management and operation of a fund.
Ms Rowell said the reformers helped to support APRA’s increased focus on member outcomes as delivering by superannuation trustees.
“All trustees, including those with strong recent financial performance, need to avoid complacency and be proactive in ensuring they continue to meet their obligations to members into the future,” she said.
“APRA will ensure this occurs by targeting underperforming funds, holding the industry to account through enhanced transparency measures and using our strengthened powers when needed.”
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