It may have gone unnoticed by many, but Friday 26 June 2015 was a highly unusual day in the history of superannuation legislation and our parliamentary process. On the same day that the government released exposure draft legislation to change governance arrangements in superannuation for public consultation, APRA wrote to RSE licensees to outline its initial proposals “to support the proposed legislative amendments” and “to support RSE licensees in transitioning to the new legislative framework”. APRA also flagged other proposals for changes to prudential standards to “take effect on 1 July 2016, in line with the expected commencement date of the legislative amendments”.
In everyday parlance, this is called jumping the gun. The release of APRA’s proposals – virtually in tandem with a detailed new government policy position in an area that has been, and continues to be, fiercely contested in the political arena – is something that we all need to be concerned about. That a regulator should be asked to issue guidelines to legislation, ahead of that legislation being introduced and debated in Parliament, raises serious questions about the integrity of the parliamentary process and whether APRA’s proud tradition of independence is under threat.
While we understand that the current Government came to power with an election promise to review governance arrangements in superannuation, its 26 June announcement went well beyond its previous policy pronouncements, including proposing the removal of equal representation, the cornerstone of default super consumer protection. In this case, the parliamentary process – which involves the persuasion of other political parties on the merits of new policies and allows for robust debate – was particularly important. Not so, it seems to government, which appears to have brought APRA into the process well ahead of what would normally be expected.
As it transpired, it took until September 2015 for the government’s legislation to be introduced to Federal Parliament, with some changes to the originally released draft Bill. Furthermore, the Opposition and other political parties have flagged their intention to oppose the legislation.
We do not know that the independence of APRA has been compromised. However, it is important for the integrity of the system and its effective regulation that there be no perception of collaboration between the regulator and executive government in relation to measures that have not been tested by Parliament and which are not yet law. Similarly, it shouldn’t look like the government is expecting too much of the regulator at an inappropriate time in the legislative process.
In this case, APRA should explain its reasoning behind the early release of its governance proposals and clearly articulate why these do not compromise its independence.
One of the key elements of the successful and effective system of financial regulation in Australia is operational independence from the regulators in relation to executive government, and adherence to their own sound governance framework.
The widespread support for APRA as a standalone regulator was reflected in the final report of the Financial System Inquiry.
In APRA’s own submission to the FSI, it confirmed its substantial independence from government but noted that over time, this has been eroded by constraints on its prudential, operational and financial flexibility.
AIST strongly agrees with the conclusion reached by both APRA and the FSI that independence of financial regulators should be maximised to the greatest extent possible, with appropriate accountability mechanisms to provide the necessary checks and balances.
The issue of APRA’s independence is also of relevance to the recent debate about the possible extension of the regulator’s powers in relation to the authorisation of MySuper products, such that it could effectively replace the Fair Work Commission’s role in the selection of default superannuation powers. While this is conjecture at this point, there is a real risk that a perception of APRA’s non-independence could arise if it were to release proposals about such moves while another legislative structure for the selection of default funds is still in place.
It is vital that the regulatory structure ensures APRA does not exercise powers that go beyond those contemplated and granted by Parliament. Furthermore, APRA must be protected from ministers (of all political persuasions) who might want to exert pressure on an independent regulator to conform to measures that are not yet law.