The fourth tranche of MySuper legislation ushers in an era of instant regulator fines. Adapting won’t be easy, but it is impossible without understanding the mechanics and subject matter of infringement notices.
APRA powers
Infringement notice procedures are severe, almost draconian, and the risks they create should be carefully considered.
Sections 224 to 224E inform us that infringement notices may be issued to a person if an Australian Prudential Regulation Authority (APRA) infringements officer has reasonable grounds to believe they have contravened certain provisions. The accused may then request the notice be withdrawn, pay a fine or go to court, but cannot be indemnified by the fund.
Remarkably, APRA is not required to explain or justify its reasonable belief in the notice. Not only does this mean indemnity is denied on the basis of an unsubstantiated allegation, it also profoundly limits the value of the right to request withdrawal.
This places the accused in a one-sided contest with the regulator in which he or she may face a stark choice: pay up personally or risk financial ruin in court.
To make matters worse, APRA is essentially unaccountable for the consequences of wrongly issuing a notice and may withdraw notices without providing reasons. This presents the spectre of notices issued in haste being withdrawn before a hearing, despite having already exacted a heavy personal and financial toll on the accused.
Further, anyone brave enough (or permitted) to proceed to court should do so knowing he or she is unlikely to be compensated if acquitted. Even though Finance Circular 2009/09 presents some prospect of reparation in particular cases, it’s a road best approached with very low expectations.
Trustees seeking to protect themselves and staff should ensure that contracts require service providers to pay costs arising from infringement notices issued as a result of contractor failings.
Trustees should also decide how to fund a defence if a notice is received. Insurance is unlikely to suffice, but establishment of a reserve financed by a third party may provide a solution.
Unreasonable procedures
Section 223A identifies 22 provisions as subject to infringement notices, but allows others to be added by regulation. We should therefore expect use of infringement notices to expand over time.
Nor is use restricted to circumstances where the accused may have committed some tangible wrong against another. Indeed, only five of the 22 provisions might fit this description.
The rest are a mixture of procedural and administrative matters with no special status in good compliance, nevertheless, each should be carefully reconsidered. At first glance some might appear well suited to infringement-notice enforcement because they involve matters of fact, but that view is illusory.
It is, for example, unclear what purpose is served by issuing an infringement notice to a trustee when an administrator misallocates MySuper contributions then corrects the error. Yet that seems typical of the circumstances in which notices could be issued in respect of s29WA(3).
Section 11C requires trustees to produce a signed declaration when notices are provided to APRA by a service provider. Many trustees do so by reviewing reports and emailing approval, which is efficient and compliant because (among other things) the High Court has defined a signature to include an acknowledgement. However, there is a danger that APRA might prefer literal declarations with traditional signatures, and seek to impose this through the possibility of infringement notices.
The risk of enforced bureaucratic preference should also be considered in relation to other provisions such as s103(3), which could result in trustees feeling pressured into routinely providing reasons for decisions despite the dangers of doing so.
Infringement-notice procedures are inherently unreasonable. Trustees should act to protect themselves and not assume infringement notices will be applied with restraint if they hope to avoid being stung.
David Galloway is a superannuation fund executive and lawyer.
