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APRA defends super funds paying fines with members’ cash

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APRA has thrown its support behind super funds, labelling pools of emergency-use funds as a means to safeguard members’ financial interests. 

Speaking before the House economics committee on Thursday, APRA chair Wayne Byres insisted that funds seeking court approval to build pools of emergency-use funds out of members’ money are not breaking any rules.

“APRA does not have a ‘zero failure’ tolerance,” Mr Byres told the committee on Thursday.

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“It is not our position that we should protect trustees in all circumstances but consistent with our mandate, failure must be orderly in order to protect beneficiaries and financial system stability,” he said.

In late 2021, several super funds, including AustralianSuper and Cbus, applied to the various state courts seeking approval to amend their trust deeds to enable the charging of fees with the view to building a financial contingency reserve to service future fines.  

In all instances, the courts concluded that pooling funds of this nature would not be inconsistent with the amendments made to Section 56 of the Superannuation Industry (Supervision) Act 1996 as part of the government’s response to the Hayne Royal Commission.

However, a committee into the issue was called over concerns about consumers’ best financial interests.

In November last year, Minister for Superannuation Jane Hume cautioned super funds against “saving their own skins” through the use of members’ money to pay for penalties and fines and hinted that new laws could potentially be introduced.

Speaking on Thursday, Mr Byres confirmed that APRA was actively involved in the majority of these court cases, appearing as amicus curiae to ensure that the courts were fully appraised of all relevant legal matters, including the new best financial interests duty, the context of the amended provisions and principles of prudent practice.

“APRA’s submissions also emphasised the importance of ensuring that the impact on best financial interests of members was appropriately contemplated by the courts in giving their advice, particularly in the context of setting fees.”

Mr Byres told the committee that APRA also ensured the super funds in question had exhausted all other alternatives.

As such, he argued that without the ability to build and maintain a risk reserve, an otherwise well run and well performing fund could be rendered insolvent by a minor operational administrative error, such as submitting data one day late, resulting in a maximum penalty of $11,100.

“The disorderly failure of an otherwise sound and sustainable RSE licensee would be likely to be severely detrimental to members as it would likely impose material costs and create significant operational risks,” Mr Byres said.

It would also be a burden for APRA, he explained, noting that the appointment of an acting trustee in case of insolvency “is not a quick or easy fix”.

“So what is important now is to focus on safeguards to further protect members’ financial interests,” Mr Byres said.

The safeguards, he explained, include APRA’s fee charging principles.

“These are important principles that APRA will apply not just to RSE licensees who have sought court approval to amend their trust deeds, but to all RSE licensees across all manner of fees.”

APRA defends super funds paying fines with members’ cash

APRA has thrown its support behind super funds, labelling pools of emergency-use funds as a means to safeguard members’ financial interests. 

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Maja Garaca Djurdjevic

Maja Garaca Djurdjevic

Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.

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