‘Is this right?’ – a new checklist
| 27 November 2018
The Hayne royal commission has given us all plenty to mull over. Much of the recent commentary has rightly focused on the shocking misconduct of the banks and insurers and Commissioner Kenneth Hayne’s headline message in his interim report that greed was mostly to blame. But there is a checklist of other important observations that, arguably, all financial services entities should take heed of to assess how well their company is running.
Here are my thoughts on what such a checklist might look like for a super fund:
Independence and consultants: Two of the biggest news stories from the hearings were case studies in which so-called independent reports companies commissioned to provide to regulators were shown to be anything but. Doctoring results or coercing consultants to change their findings is unacceptable.
Fund communications: In many of the case studies, internal and external communications were shown to be sloppy at best
and misleading at worst. This included overblown marketing statements on websites and loosely worded emails to members. Even the smallest website change needs a compliance lens. The potential impact should not be underestimated.
Staff resourcing: Many entities before the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry blamed a lack of staff for errors that led to poor consumer outcomes. Hayne’s response was blunt: resources are within the control of boards and executives. He asked whether there should be greater consequences for entities that fail to design, maintain and resource their compliance systems to ensure they are effective.
Compliance: The interim report emphasises that compliance should be dealt with comprehensively, rather than on a piecemeal basis, “which does not readily permit identification of underlying causes”. In a highly regulated industry, compliance is a necessary cost of doing business and should be appropriately resourced.
The report also notes that technology glitches can constitute serious misconduct because they represent a failure to meet a contractual promise.
Staff training: Many case studies revealed that company policies were not well understood or applied by junior staff. Hayne noted the importance of adequate education and training of staff: “Those who know why the step is required are more likely to take it than those who know only that the relevant manual requires it.”
Documentation: Improper and inconsistent documentation was another concern. This was most stark in IOOF’s case, when the company submitted hand-written board minutes as part of its evidence. But there were other instances of entities lacking documentation to account for key decisions and the monitoring of those decisions.
The message for super funds? Less is not more. Whether it is the assessment of board appointments, sponsoring arrangements or outsourcing agreements, the reasoning behind decisions must be fully documented. This also applies to credit card expenses.
Culture and remuneration: A key message in the interim report was that incentivised remuneration schemes fuelled a greed-driven culture. While this type of remuneration is far less common in the profit-to- member super sector, it does exist and should be carefully considered in light of Hayne’s observations.
The royal commission has reminded us of the enormous trust that consumers place in providers of financial services. From directors through to those working at the call-centre coalface, everyone in the super sector has a role to play in ensuring this trust is well placed.
In his final report on the royal commission into the collapse of HIH Insurance, back in 2003, Justice Neville Owen commented: “Did anyone stand back and ask themselves the simple question, ‘Is this right?’ ”
Hayne is arguably asking the same question today, and funds could do worse than to add it to their decision-making frameworks.