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New superannuation powers to help APRA weed out underperforming funds

Thursday 4 April 2019

The Australian Prudential Regulation Authority (APRA) has welcomed the passage of legislation granting it stronger powers to take action against the trustees of underperforming superannuation funds.

The Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No 1) Bill 2019 provides APRA with a broad and long sought-after directions power. It also gives APRA the power to take civil penalty action against trustees and their directors for breaching their obligations to members, including the duty to act in the best interests of members.

The new powers for APRA include those recommended by Commissioner Kenneth Hayne in the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

Deputy Chair Helen Rowell said the legislation significantly strengthened APRA’s ability to drive trustees towards improved outcomes for members and to address underperformance at an early stage.

“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,” Mrs Rowell said.

“The new civil penalties that may be imposed on trustees and directors for breaches of their section 52 and 52A duties will attract 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.

“In some instances, acting in the best interests of members will require underperforming funds to merge or exit the industry. 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 legislation also requires trustees to conduct an annual outcomes assessment against a series of prescribed benchmarks, including all of their MySuper and choice superannuation product options, and enhances APRA’s power to refuse, or to cancel, a MySuper authorisation.

The new outcomes assessment requirement is generally consistent with APRA's recently released member outcomes prudential standard and APRA is considering the extent to which the standard will need to be amended to accommodate the new legislation. APRA will provide guidance to industry on this as soon as possible.

APRA has also been granted new powers to refuse authority for a change in ownership or control of an RSE licensee; to give a direction to a person to relinquish control of an RSE licensee; and to remove or suspend an RSE licensee where it is subject to the control of its owner. The Bill also empowers APRA to collect data on expenses relating to the management and operation of a fund on a look-through basis. This will enable APRA to better understand whether trustees are spending members’ money in line with their obligations under the Superannuation Industry (Supervision) Act  1993, particularly the best interests duty and sole purpose test.

Mrs Rowell said the reforms supported APRA’s increased focus on the outcomes trustees across all superannuation sectors were delivering for their members.

“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. 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,” she said.

The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding $6 trillion in assets for Australian depositors, policyholders and superannuation fund members.