Helen Rowell, APRA deputy chairman

The Productivity Commission’s retirement system report has laid out a plan to improve the country’s entrenched “twin peaks” regulatory model, which it says is “confusing and opaque” with too much overlap between the two bodies.

The conduct regulation arrangements between ASIC and the Australian Prudential Regulation Authority have “inevitably” resulted in poor accountability between the bodies, the final report on the PC’s inquiry into the efficiency and competitiveness of the superannuation system states.

They also “contribute to the lack of strategic conduct regulation, especially public deterrence through enforcement action, with poor outcomes for members”, the report added.

Productivity Commission deputy chair Karen Chester, who signed off on the 722-page PC report, was appointed in December to replace Peter Keller as ASIC deputy chair and will assume the role later this month. She has been a fierce critic of the corporate watchdog since leading a review of its operations in 2015.

In the report, APRA was lambasted for failing to require meaningful data from the super funds it regulates, while both regulators were walloped for not cracking down on recalcitrant funds faster.

As part of a range of recommendations, the PC said APRA should focus more on matters relating to licensing and authorisation, ensuring high standards of system and fund performance, while ASIC should focus more on the conduct of superannuation trustees and financial advisers, and on the appropriateness of products and disclosure.

It also called on the federal government to clarify the roles of APRA and ASIC in relation to superannuation.

“In doing so, it should consider the suitability of each regulator’s powers, the suitability and strength of penalty provisions for misconduct, and whether there are any undesirable constraints on either regulator engaging in strategic conduct regulation,” the report states.

At the same time, the government should run a previously agreed upon independent capability review of APRA to determine if the body has the capacity to supervise and regulate the superannuation system adequately, in line with its current responsibilities.

The PC stated that APRA should be forced to report annually to the Council of Financial Regulators on funds’ progress implementing the elevated outcomes tests and on fund merger activity.

It should also undertake a systematic assessment of the costs to funds of the thousands of legacy products in the superannuation system, the commission argued.

“If the evidence demonstrates that they represent a significant cost in accumulation, APRA should further refine trustees’ obligations for member transfers so these products can be rationalised,” the PC stated.

APRA should also require funds to conduct formal due diligence of outsourcing arrangements at least every three years, the PC report states, to ensure they add value.

There are 198 APRA-regulated funds, a number the corporate regulator has made no secret of wanting to see reduced. In August 2017, it wrote to the boards of the worst performers, saying they should make changes or they risked being shut down.

In a statement issued on Thursday, APRA deputy chairman Helen Rowell said it was committed to delivering “optimum member outcomes”.

“New and enhanced prudential requirements we announced last month included strengthened member outcomes assessment obligations for all superannuation products, and APRA has continued its progress in getting trustees to take action on underperforming funds,” Rowell said.

This comes after commissioner Kenneth Hayne called out both APRA and ASIC for lack of action in the interim report from his Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, released late last year.

“When misconduct was revealed, it either went unpunished or the consequences did not meet the seriousness of what had been done,” Hayne wrote. “The conduct regulator, ASIC, rarely went to court to seek public denunciation of, and punishment for, misconduct. The prudential regulator, APRA, never went to court.”

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