Super funds fail to identify conflicts of interest with director switching

The corporate regulator has found failure in superannuation fund identifying conflicts of interests with superannuation trustee directors and senior executives regarding personal investment switching based on their knowledge of timing of the revaluation of unlisted assets.

An Australian Securities and Investments Commission (ASIC) surveillance looked at 23 trustees from industry and retail funds during the increased market volatility that stemmed from the COVID-19 pandemic.

ASIC said the surveillance revealed conduct fell below its expectations.

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ASIC commissioner, Danielle Press: “We expected superannuation trustees to have robust conflict of interest policies that dealt adequately with investment switching, including by their directors and executives. What we found instead was often a clear failure to identify investment switching as a source of potential conflict, resulting in a lack of restrictive measures and oversight to adequately counter this risk.

“This is very concerning given the level of sophistication and governance required of trustees when managing millions of dollars in assets on behalf of fund members.”

ASIC said some trustees did not have oversight processes in place for investment switching by their directors and executives at the time of the surveillance but since indicated that they were looking to implement such processes moving forward.

“Trustees must have effective conflicts management frameworks to prevent the misuse of such information,” Press said.

“Policies should cover the identification, control, management and regular monitoring of conflicts as well as the consequences for non-compliance. Such protections will help trustees manage the risk that their executives' own interests or those of a related party results in loss of confidence in the fund or in detriment to members.”

ASIC’s key concerns with trustees’ management of conflicts of interest included:

  • Failure to identify investment switching as a risk: The majority of trustees either did not identify a director or an executive having an interest in the superannuation fund for which she or he works as a ‘relevant interest’ (for the purposes of their conflicts management policies) or identify investment switching as giving rise to a conflict of interest. This meant there was often a commensurate lack of controls or guidance for how any associated conflicts should be managed.
  • Disparity in board-level engagement: There was significant disparity among trustees in the level of engagement by their boards on the issue of conflicted investment switching by directors and executives. This flowed into the prescriptiveness of relevant policies outlining restrictive measures to adequately deal with this issue. Some boards were proactively engaged, while others were not able to demonstrate that they had considered the issues at all.
  • Lack of restrictive measures: Almost half of the trustees (10 of the 23) did not have preventative controls such as trade pre-approvals or switching blackout periods to limit executives’ ability to switch investment options. Even when trustees had restrictive measures in place that covered investment switching, directors and executives were sometimes given a blanket exclusion from the policies even though the policies applied to all other employees.
  • Inadequate oversight of investment switching: Many trustees did not have mechanisms in place to regularly review switching activity by their directors and executives, including checks to ensure compliance with policies. Trustees were instead reliant on directors and executives self-reporting any breaches of the policies.
  • Lack of oversight of related parties: A common issue was a failure by trustees to identify switching by related persons (such as a spouse) of directors and executives as giving rise to a perceived or potential conflict of interest. Even where the trustee’s policies might have extended to cover related persons, there was often no or very limited ability for the trustee to identify these individuals or monitor their trading activity.

 




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Lets not attack the industry funds. ASIC found fault with both retail and industry funds.

Let’s not attack Industry Super, of course not ASIC will never do any real attack on Industry Super.
Industry Supers main investment game is Unlisted Assets.
Of course when ASIC finds real problems with dodgy Industry Super Fund activity, right from the top of the crop, nothing will happen.
Bust out the wet lettuce leaf ASIC to pat against Industry Super dodgy trustees.
REGULATORY CAPTURE CORRUPTION at its worst.
ASICs total love affair with Industry Super is sick, disgusting and beyond defence.
Of course though nothing will happen to those involved.

You couldn't resist could you!!

We only have Danielle's word on that.

This came about because there were so many union funds found out by Senator Wilson's inquest last year that of course ASIC couldn't do anything against their red rag waving mates, so had to do 'a full investigation'. Be interesting if that ever sees the full light of day, or like so much in ASIC's inner works, gets covered up and hidden.

We all know ASIC IS CORRUPT.

I think HAYNE was bidens brother, are u my wife? ISF nothing to see here

Anyone lose their job over this? Anyone penalised in any way whatsoever? Didn't think so, ASIC will do anything to avoid upsetting their union fund mates. An adviser doing anything close to this would be named, shamed, fined, banned and jailed.

They sure would.

This cannot be swept under the rug with a warning and a request for better systems.

If someone has engaged in this behaviour willfully, they need to be fully investigated and held to account.

The equity of the handling of this needs to be appropriate to maintain confidence in the regulator.

In September ASIC was prosecuting an individual (different case) for insider trading and their press release stated: Each charge of insider trading carries a maximum penalty of 15 years’ imprisonment.

Armstrong Legal quotes that the penalties can be up to 10 years imprisonment and/or the greater of $495,000 or three times the profit gained or loss avoided.

How is this not insider trading and why would there not be the same law and prosecution?

Despite saying there were both retail and industry, this came about because LNP's Tim Wilson raised the misdeeds during last years Parliament economics Committee with ASIC's inaction, specifically regarding AustralianSuper, NSG Super, REST, First State, HostPlus and InTrust all having blatant incidences. ( https://www.afr.com/politics/asic-weighs-insider-trading-charges-against... )

We're now 10+months into 2021 and ASIC have done nothing.

I won't lament the lack of justice, but as a bare minimum I would expect the law to be upheld.

Ok, Danielle Press releases a"we're disappointed" press release. I'm waiting for the other ASIC release to say "the trustee boards have been asked to show cause why the executives and board members who thought they could cheat the system, irrespective of any rules in place to mandate ethical standards still occupy their positions. ASIC expects the offending individuals to be shown the door and ASIC will be taking action to ban these individuals from having any management position in an AFSL in the future."
Well silly me - I guess if they're not financial advisers, they can get away with unethical conduct if the organisation doesn't have any effective rules or oversight processes in place. So it's the organisation that gets the wet lettuce thrashing. The offenders stay where they are, probably participating in devising rules to curb their own greedy and corrupt conduct. If you meet one of these trustees/execs and shake their hands, make sure you count your fingers after.
This is an absolute disgrace if ASIC doesn't take stronger actions to ban people who think it's ok to game and cheat the system. Trustees have a fiduciary duty - how is allowing a privileged few the ability to steal returns from those to whom they owe a legal and ethical duty ok?
FMD, has ASIC learnt nothing from. the Royal Commission?

I don't trust retail OR industry fund directors on this! Thats why a wrap platform, where we choose the individual investments, comes into its own.

Yes, I'm with you. I need to add another benefit to each SOA explaining that using a Superannuation Administration Service and professionally managed funds avoids insider trading on the part of the trustee. :P

Name the funds and individuals - insider trading??????

So what are the penalties? Where are the Director resignations? What about insider trading laws? If a planner did this we would be rubbed out forever! And probably jailed.

Is there no end to the corruption of industry super funds? Is there no end to the corruption of ASIC in kahoots with Industry super funds?

To hear stories members of Trustee Boards potentially obtaining a direct and indirect financial benefit from this type of behaviour is absolutely disgusting.

The equity and ethics of this is appalling.

Those who engaged in this type of behaviour should no longer be deemed as suitable to hold these positions. You don't need an ethics exam to tell you that. Go ask Martha Stewart.

It also raises questions about the equity regarding members unit pricing. If valuations aren't updated in a timely or appropriate fashion, then someone could be paying $1.10 for something worth $1.00 and someone selling at $1.10 when its really worth $1.00.

Given the scale of some of these funds, if inequity was being observed, the size of the inequity distributed over the member pool would be large.

I want to see some people removed by ASIC as Trustees..... Immediately.

I don't care if they are retail or ISF. Just because you didn't have a internal monitoring process doesn't mean you have a defense.

If you willfully use sensitive information in your position as a Trustee to obtain a personal benefit, you are culpable.

End of story. No excuses.

FASEA Code of Ethics - standard 3 "You must not advise, refer or act in any other manner where you have a conflict of interest or duty". Trustee directors and senior executives SHOULD NOT be members of the fund they run!

They didn't advise, nothing so noble... they just stole money. :P

...."ACT IN A MANNER"

But if your not a member of the fund you run, how can you personally benefit from inside information? All profits for the members right?

I've worked for an ISF that had effective controls to prevent this from occurring and am very disappointed to see so many other funds failing their members in this area. This article should be updated though as it doesn't tell the full story. ASIC are indeed pursuing this further and I'm interested to see the outcome of this. To quote their media release: "ASIC is also continuing to gather additional information and consider next steps on some of the trading activity identified during the surveillance. ASIC will consider appropriate regulatory action where misconduct causing consumer harm is identified."

NAME THE FUNDS. If they were a non-industry fund they'd be named & Shamed.

....and if some are industry funds, they should be named and shamed too. :P

This is not just an ethics issue. These fund trustees have broken the Fiduciary Duty they have to members and this clearly shows their lack of fitness to run a Superannuation Fund. This is the same Fiduciary Duty they use to get carve-outs on Intrafund Advice.... which is clearly just a sales gimmick for their own benefit.

In relation to the individuals who took advantage, this is clear insider trading. Nothing less than a prison sentence is sufficient here.

In addition, this has been found out only for the Covid-19 revaluations.... but how long has it actually been happening for? You can bet your life that this has been going on for decades.

"Don't pay hungry advisers... give your money to us instead". Turns out they meant that literally. LOL

Where are the comments from ASIC saying, "we want to see heads on sticks."

This is totally unacceptable and they should all be punished. What have the penalties been for others 'front running' like this?

Good to see none of these super funds reported anything either. They would have easily known this was going on.

RG 265.237 Under Rule 5.11.1, a market participant must notify ASIC in writing, as soon
as practicable, if it has reasonable grounds to suspect that:
(a) a person has placed an order or entered into a transaction on a market
while in possession of inside information;

I'm gobsmacked! I thought those guys were all as honest as the day is long. Are you telling me there is entrenched corruption? Wow. I mean wow. So can we be told who they are? After all, if it was a for-profit fund or an adviser, they'd be paraded and stoned.

hopefully they go back 10 years like the adviser look back program and see what switches were made historically, not just relating to the pandemic

APRA just released to say they found poor practices when it comes to valuing unlisted assets, ASIC reported 12 August it found good practices. I know who I'm backing to be right.

Back ASIC, they always tell the truth as there is only ever good news and wonderful truth about their best buddies at Industry Super.
FFS how corrupt, anti competitive, self pocket lining, jobs for each other can these mobs be?
But yet they continue to get away with more and more and more dodgy super theft.
The bigger the super pie grows the bigger their theft and schemes abound.
Congrats to ISA, ASIC, Labor, Left Wing zealots are ruling the roost and helping themselves to as much as they can grab from the super $$$$ hen house.

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