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BFCSA: APRA Propaganda - APRA to turn the screws on super

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APRA to turn the screws on super

Australian Financial Review Mar 27, 2019 4.26pm

Joanna Mather


A review of the sole purpose test - the centrepiece of superannuation law – is set to examine inducements, political advertising and financial activism.

In a letter to super trustees on Wednesday, Australian Prudential Regulation Authority deputy chairman Helen Rowell confirmed a review of the application of the sole purpose test to clear up "ambiguity".  The test requires funds operate for the core purpose of generating benefits for retirement.

“Given the questions that have arisen about the appropriate range of activities that fall within the sole purpose test, and its importance in determining the boundaries of practices that may be regarded as acting in the best interests of members, APRA intends to undertake a review, involving ASIC as appropriate, of particular cases or circumstances where compliance with the sole purpose test has been called into question,” the letter says.

APRA is understood to be focused on issues such as spending on political advertising and entertaining employers, which were raised during the royal commission.

Using corporate entertainment to retain business is dealt with in new legislation banning what Commissioner Kenneth Hayne called "treating of employers" after he heard evidence of Hostplus courting employers at the Australian Open.

APRA flagged its intention to review the application of the sole purpose test last year. In recent months new issues have been emerged.

AustralianSuper has been criticised for offering frequent flyer points to new members, while Treasurer Josh Frydenberg pointed to potential breaches of the sole purpose test and best interests’ duty stemming from a spat between unions and BHP.

Mr Frydenberg wrote to APRA asking whether additional powers were needed to ensure industry funds did not succumb to pressure from the Australian Council of Trade Unions, which was demanding a reassessment of their BHP holdings based on the potential loss of 80 jobs.

Review welcomed

“In light of Commissioner Hayne’s recent findings regarding the best interests duty and sole purpose obligations of trustees, it is important that the public have confidence that trustees are discharging their duties in accordance with their legal obligations and there are satisfactory arrangements in place for them to manage any associated conflicts of interest such that members’ interests are preferred," Mr Frydenberg wrote.

Australian Institute of Superannuation Trustees chief executive Eva Sheerlinck said the review was welcome. "It has been some time since APRA provided guidance on the sole purpose test and the superannuation industry has evolved considerably since then," she said.

"Given the requirement for trustees to act in members’ best interests, the industry would benefit from clear principles and more guidance on the range of activities that fall within the sole purpose test, which includes how funds can invest."

Related-party arrangements of the type that left AMP members languishing in inferior cash investments, for example, will also be reviewed by APRA.

“With respect to outsourcing arrangements, APRA is planning an in-depth review, most likely through the engagement of external experts, commencing later in 2019,” Ms Rowell's letter says. “This will be undertaken in stages, initially focused on a small number of larger superannuation entities with material related party arrangements.”

At the The Australian Financial Review Banking & Wealth Summit on Wednesday, APRA chairman Wayne Byers chided superannuation funds for failing to take culture audits as seriously as banks and insurance companies.

After cultural failings were found within Commonwealth Bank, APRA asked other major financial institutions to reflect on whether they might have similar problems.

Warning against complacency

Mr Byres toldthat banks took the process “seriously” and insurers were mostly “diligent”, but super funds suggested CBA’s problems weren’t especially applicable to them.

“Given one of the core CBA findings that success dulls the senses, and my earlier comment about small individual problems compounding into something more serious, I’d urge some caution against that conclusion,” he said.

Also at the summit, the Australian Securities and Investment Commission revealed it was poised to take funds exhibiting chronic underperformance to court.

ASIC deputy commissioner Karen Chester told the summit on Tuesday that she had sufficient powers to start suing dud funds, as measured by investment performance over a 12-year period and against benchmarks devised by the Productivity Commission.

“You’re looking at at least 30 plus funds that’ve persistently underperformed, plus one in three MySuper products and choice products," she said.

“Plus you’ve also got 93 funds under $1 billion in funds under management. So you’re look at perhaps close to 100 funds exiting.”

A new prudential standard for super fund member outcomes starts from January 2020.

“In cases where, in APRA's view, trustees are persistently underperforming, supervisors will discuss with trustees how this may be promptly addressed and whether they may need to consider a restructure or exit from the industry," Ms Rowell's letter says.

"APRA would use the potential stronger directions powers (currently pending in legislation before Parliament), where needed, to compel trustees to take appropriate action.”

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