Super fund governance changes is unnecessary over-reach

20 August 2015

The key industry superannuation funds are continuing to reject the Government's proposed legislative changes to governance arrangements and are citing legal advice that the moves represent over-reach.

The industry funds' rejection is coming despite the Government agreeing to a number of amendments to the exposure draft legislation, including greater clarity around independent chairs being drawn from the one-third independent directors.

However the legal analysis being utilised by the industry funds claims the Australian Prudential Regulation Authority (APRA) is already equipped with necessary powers and may be given over-reach on issues of independence which should be left to the Government.

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A short paper prepared by Hall and Wilcox Lawyers, for the Australian Institute of Superannuation Trustees, claimed that the Australian Prudential Regulation Authority (APRA) was already equipped under the Superannuation Industry (Supervision) Act (SIS) and prudential standards to oversee super fund boards and would be required to make judgements outside its current remit.

The paper stated that when considering the stated objectives of the Government around fund governance and independence compared with the current requirements under SIS and prudential standards "it is difficult to identify existing gaps or areas where APRA does not already have significant powers to step in if it identifies an issue of concern".

Hall and Wilcox also stated that, under the proposed changes, APRA would be required to determine if a board director was independent with no criteria described as to how that would be measured and could make decisions around independence criteria through Prudential Standard, effectively bypassing Federal Parliament.

Industry Super Australia (ISA) has cited the paper as showing any changes to governance provisions were unnecessary with ISA chief executive David Whiteley questioning what the Federal Government was trying to achieve with the proposed changes.

"This legal advice raises doubt about the rationale behind the government's proposed changes and reinforces the view that the changes are a solution in search of a problem," Whiteley said.

He stated the estimated cost of any changes would be around $178 million for not for profit super funds and would be borne by fund members despite "very clear obligations for directors are already set out in current superannuation legislation and in legally binding Prudential Standards".

"The question is what problem is the government trying to fix?" Whiteley said.

However the Financial Services Council (FSC) has thrown its support behind draft legislation released by the Assistant Treasurer, Josh Frydenberg, stating governance reform would raise standards and boost competition across the wider superannuation industry.

FSC chief executive Sally Loane said the changes would benefit all super funds and "did not single out any one fund type, but are actually designed to improve governance across the $1.4 trillion APRA-regulated sector".

"With the changes, Australian consumers can have more certainty that the entity managing their retirement savings has the highest standard of governance regardless of whether it is a retail, industry, public sector or corporate fund," Loane said.

"In a mandatory super system, consumers are entitled to the highest standards of governance."

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Anyone got a theory as to why the ISN is fighting these changes so hard? There must be a reason, and I would love to know the facts around what it is.

Yes Melinda one wonders why they are fighting so hard given that Industry funds make the statement that they are only set up to benefit members. An improvement in governance is definitely in the interest of members so why fight it. Unless the Union heavyweights that control industry super funds are worried that they are going to lose their cash cow or even worse maybe they are concerned about having spotlight shone on their activities. Surely industry funds speak the truth when they state they are only set up to benefit members.

They don't like transparency and the headline fees are not the real fees, and the real fees are associated with unions. And, some of the valuation techniques on unlisted assets are questionable, making their returns look less than advertised. And the insurance policies are not going to pay out. Other than that, not much.

Whitely protests too much! I find it strange that David Whiteley did not protest at the hundreds of millions of dollars costs the legislative changes inflicted upon the advice sector of the superannuation industry in a non-transparent cooperative effort between the ISA and the then Labor government. He appeared to welcome the effects of the costs being passed on to superannuation members as a wonderful justification for enticing members away from the advice sector and into industry funds.
I also find it quite strange that he is opposed to measures intended to raise industry standards challenging the initiative with the observation, "The question is what problem is the government trying to fix?" A question he failed to ask when FOFA was introduced.
While I agree that some regulations are overkill and do not address problems and deficiencies they were intended to fix, I would like to see more uniformity introduced to the industry. That is, the same rules for directors of superannuation funds as applies to corporations and a higher degree of commonality between regulations applying to industry funds and funds within the advice sector.

While I agree with the general tenor of the opinions [and have written many times on unifying all reporting and Fund disclosure requirements, while improving Union Super transparency], I think that your comment about bringing Super Trustees responsibilities in line with Corporate Directors is probably incorrect, and will actually reduce their responsibilities. The latitude, commercial "reasonableness", and protection allowed Directors is [I believe] far more than allowed Super Trustees, so it would actually reduce Member protection. Someone making commercial decisions in the open market [even with responsibility to Shareholders] has a lot more latitude than someone who is charged with the more limited job of protecting and enhancing Member's savings.

The answer to 'Why is it needed?' can be answered very simply - The very live example of the Health Services Union

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