Commissioner Kenneth Hayne during The Royal Commission's initial public hearing into Misconduct in the Banking, Superannuation and Financial Services Industry in Melbourne, (Photo: AAP)
Commissioner Kenneth Hayne during The Royal Commission's initial public hearing into Misconduct in the Banking, Superannuation and Financial Services Industry in Melbourne, (Photo: AAP)

Australia’s superannuation trustees will be forced to lift their game, their roles will be restricted to avoid conflict and they will be hit with civil penalties for failing to act in the best interests of members.

These are some of the recommendations made in Commissioner Kenneth Hayne’s final report for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry released publicly on Monday afternoon.

The Hayne Commission report has made three key recommendations aimed at elevating the role of super trustees.

Super trustees should be prohibited from “assuming any obligations other than those” related to being the trustee of the fund, and be banned from “treating” employers in order to have their fund nominated as a default fund under a new civil penalty provision.

Further, the Hayne Commission also recommended trustees should be prohibited from hawking super products, should not be allowed to deduct advice fees from a MySuper account and should be limited from deducting fees from Choice accounts.

Importantly, the Commission has also recommended the banking executive accountability regime (BEAR), which governs who is responsible when issues arise, should be applied to the superannuation industry.

Trustee accountability and restrictions on use of members funds is consistent with the latest report from the Productivity Commission,” says Deb Latimer, Deloitte head of  corporate governance, superannuation.

“The overarching message here is the practice of trustee governance. Hayne is not just layering on more rules but focusing on the practice of governance and getting trustees more focused on consequences.”“The prohibition of the trustee not having any other role or office coupled with the introduction of a civil penalty for breach of the best interest covenant convent is certainly increasing accountability in a very focussed way,” she said.

All up, she sees Hayne’s recommendations as taking super trustees back to fundamental norms targeting best interest duties, the use of members funds and member outcomes.

Her view is underscored by Hayne’s comment that existing trustee rules – especially the best interests covenant and the sole purpose test – set the necessary standards.

“The best interests covenant is simply stated. Yet the conduct examined by the commission, and submissions made by trustees, suggested that some trustees had difficulty understanding when and how the covenant applied,” the report noted.

Industry Super Australia (ISA) says the final  report opted for a series of changes to existing laws and stronger enforcement. This was foreshadowed in Hayne’s interim report.

“As a whole, the system must be more transparent and more accountable – it shouldn’t take a Royal Commission for workers to see whether their retirement savings are in safe hands or not,”said ISA deputy chairman Matt Linden.

The Association of Superannuation Funds of Australia says recommendations from the report will make super stronger in Australia.

“Reforming the system in this manner will build consumer trust and confidence in a system that is already delivering some exceptional outcomes for Australians,” chief executive Martin Fahy said.

“The commissioner has acknowledged that the regulatory architecture underpinning our system is strong and that the best interests covenant, and sole purpose test, set high standards for trustees operating superannuation funds.

“However, in the course of his forensic inquiry, the commissioner has identified specific areas for improvement to ensure these standards are better applied in practice.

Fahy said the introduction of the penalties is a key part of the  regulatory framework.

However, he warned that it is important for each recommendation To be worked through carefully to consider unintended consequences.

Elizabeth Fry has been a financial journalist for more than 25 years and has written for a number of publications, including CFO, The Financial Times and The Australian Financial Review.