The securities regulator is yet to determine whether superannuation trustees should be allowed to direct funds to pay customer remediation using operational risk reserves, general fund reserves or from “somewhere else”, senior ASIC commissioners have said.
In addition to initiating civil actions against superannuation funds including REST and Statewide Super in March, ASIC also held roundtables with superannuation industry participants to determine what an appropriate source of remediation funding might be, ASIC’s deputy chair and commissioner Karen Chester described during a House of Representatives Economics Committee hearing on Monday.
ASIC will use the discussions with industry to inform its final guidance on how superannuation trustees can direct funds to pay for consumer remediation, Chester said during an exchange with Liberal Party MP Tim Wilson (pictured) on Monday.
In December last year the government separately passed an amendment banning trustees from allowing member funds to be used to pay for penalties where there has been a breach of the Corporations Act or other commonwealth law from January 1 next year.
ASIC commissioner Danielle Press who joined Chester told the House of Representatives Committee on Monday that it was her understanding any remediation program to come off the back of ASIC’s civil action against REST would be paid from the fund’s operational risk reserves.
Funds are required by APRA to hold an operational risk financial reserve (ORFR) equivalent to the value of 25 basis points of funds under management. Many funds are holding “general” reserves over and above these risk financial reserves, experts have told Investment Magazine.
Further inquiry into how REST plans to pay for remediation following ASIC’s action was taken on notice by Press in the exchange with Wilson.
Wilson also directed a series of questions relating to the remediation program underway at First State Super (now Aware Super) and the $100 million this fund has already paid in relation to historic advice of its financial planning subsidiary, StatePlus.
The acquisition of StatePlus was funded with a promissory note, debt funding which now sits as an investment in the fund’s investment portfolio.
During the House of Reps session, ASIC’s Press noted that remediation had been paid from the revenue of the StatePlus subsidiary and not from member funds — even though impairment or write downs of the StatePlus note would impact some member balances.
Press said she would take on notice questions from Wilson to investigate funding of Aware and StatePlus’s remediation to get more clarity on whether this directly impacted member balances.
Aware Super could not confirm from how it planned to fund future redundancy payments and other risks associated with StatePlus in response to an inquiry from Investment Magazine.
An Aware spokesperson confirmed the group’s advice business is undergoing a reorganisation that will result in the redundancy of roles within its 27 offices.