Civil actions initiated by ASIC in the last week against REST and Statewide Super could be the tip of the iceberg as the regulator uses powers under its broader remit to put the superannuation industry and in particular trustee competence and oversight under the spotlight.

“I think this is a demonstration that ASIC has become a fully-fledged regulator of superannuation funds, both enforcement and supervisory,” Hillary Ray said, partner with law firm Cowell Clark who is an APRA and ASIC specialist.

Legislative reforms passed by Treasurer Josh Frydenberg in the wake of the Hayne royal commission expanded ASIC’s role in superannuation supervision and enforcement which came into effect at the start of January this year.

“ASIC has chosen the REST case carefully as it does not encroach on APRA’s patch but is focussed on the representations made to its members and that these were false, misleading or deceptive, squarely within its powers,” Ray noted.

ASIC has alleged that REST made misleading and deceptive representations to members regarding whether they could transfer out of the Fund; its civil penalty proceedings against Statewide are for alleged misleading or deceptive correspondence relating to insurance cover.

“I think this is a bold statement that ASIC will actively be policing superannuation funds and not just regulating them from a supervisory perspective,” Ray said.

Full pipeline

Indeed, ASIC deputy chair Karen Chester expanded on the regulator’s superannuation industry focus during an industry event in Sydney on Wednesday where she described more than 20 enforcement investigations and multiple surveillances about potential super trustee misconduct the regulator is currently managing.

“Enforcement will always be a cornerstone of our super regulation,” Chester said.

“ASIC’s enforcement will tilt strongly towards harm-targeted deterrence, especially in the all-important window of the next 12 to 18 months,” she said.

Chester also highlighted ASIC’s recent actions against NAB’s Wealth Management division which led to a $57.5 million penalty in 2020 as well as the recent High Court decision relating to Westpac’s superannuation sales campaign which set an a standard for super trustees recommending rollovers from other funds.

ASIC’s focus on trustee competence and oversight has led the regulator to investigate a “pocket of trustees” it believes is involved in misconduct, Chester revealed during a Q&A on Wednesday.

“There is a pocket of trustees that we think from some of the misconduct that we’re seeing haven’t got the memo and we’re there to make sure that they do understand the memo and they do follow the memo,” Chester said.

Structural differences

Recent actions brought against profit-for-member funds under the regulator’s new remit will likely push funds to accelerate discussions to address the durability of these structures, some experts have said.

Industry fund trustees without balance sheets like their retail fund brethren will be prohibited from using member funds to pay penalties from January next year for a breaches of the Corporations Act or other Commonwealth Law following a recent amendment.

Trustees will need to find ways to get more confident and closer to the operational and risk approaches taken by their funds partners, one fund insider noted.

“Trustees will have to turn themselves inside out to reduce their risk profile to minimise the potential for any civil penalty provision applied by regulators,” this insider who requested to speak on background said. This person added that trustees with fines levied against them could end up insolvent.

Insiders noted that the profit-for-member industry is yet to come up with a solution for balance sheet creation that preserves the model designed recycle profits to members in the form of services and lower costs.

 

Smith is head of content and managing editor of Professional Planner and Investment Magazine.
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