Super reform package will increase APRA's enforcement powers
Australian Financial ReviewJul 20 2017 11:45 PM
Tony Boyd
EXCLUSIVE The prudential regulator will be given sweeping new powers to intervene in the governance of the $460 billion default superannuation sector as part of a package of reforms that will increase the scrutiny of fund trustees.
The reforms, being released by the federal government next week, include a new "outcomes test" forcing the trustees of MySuper default funds to make an annual written determination as to whether the financial interests of members are being promoted by their trustees.
The Australian Prudential Regulation Authority will be given new powers to refuse or cancel the authority of a regulated MySuper entity if APRA determines it has failed to comply with its obligations.
This new test will allow APRA to more closely scrutinise the performance of MySuper funds against their stated investment objectives. It should allow the regulator to intervene more readily and deal with serially under-performing funds.
APRA's increased powers will include the ability to prevent a change in ownership or control of a MySuper fund. All changes of control will have to be approved beforehand by the regulator.
APRA will also be given increased powers to intervene at an early stage to address prudential concerns it may have about a fund and how it is being run.
These measures are designed to ensure that there is no repeat of the Trio Capital fraud which saw about $200 million in super savings funnelled into offshore entities.
The Trio Capital group transferred super savings into a locally incorporated funds management group which switched the money offshore into entities outside of the reach of APRA and the Australian Securities and Investments Commission.
The Trio collapse in 2009 triggered a federal government compensation plan but this did not include self managed super funds. SMSFs will remain outside of the ambit of APRA regulation.
The Australian Financial Review understands the reform package will be unveiled by Financial Services Minister Kelly O'Dwyer.
Improved enforcement
It is believed she is keen to deliver stronger prudential standards, improved enforcement and more transparency for the supervision of retail super funds, industry funds and corporate funds.
The last time the federal government attempted to reform the governance and supervision of the super industry it focused on the governance of funds and the need for a minimum number of independent directors.
This stalled in the Senate after industry super funds were highly effective in lobbying the cross bench Senators. Senators Jacqui Lambie, Glenn Lazarus, John Madigan and Nick Xenophon sided with Labor and the Greens said they would vote the bill down.
It was a double blow to Ms O'Dwyer because it was her first legislative test and it involved a key election promise.
The cross benchers agreed to wait for a review of industry super governance by former Reserve Bank of Australia governor Bernie Fraser. His report was finally delivered in February this year, almost a year after it was due.
He found that there were no grounds for legislation that would force boards to have a minimum number of independent directors.
Ms O'Dwyer is likely to highlight the need to update the rules for super funds, which have been the same since the first super legislation was released in 1993.
The government takes the view that the rules no longer meet best practice or are lower standards than those which apply to other prudentially regulated entities or public companies.
The package will be welcomed by APRA. Its commissioner responsible for super, Helen Rowell, has repeatedly said in speeches and in evidence to Senate Estimates hearings that the regulator needed greater intervention powers.
The package of reforms will be open to public consultation for about a month before the bills go before Parliament.