The terms of reference which will guide the Royal Commission into the Banking, Superannuation and Financial Services industry has placed the so-called sole purpose test firmly on the agenda.
The terms of reference were confirmed within the “Letters Patent” establishing the Royal Commission and which were issued yesterday, with the preamble making clear the Government’s priorities by referring to banking and then, quite specifically, superannuation, followed by financial services.
Scrutiny of superannuation funds’ adherence to the sole purpose test is entailed a sub-section which authorises the Royal Commission to investigate “whether the use by financial services entities of superannuation members’ retirement savings, for any purpose, does not meet community standards and expectations or is otherwise not in the best interests of those members”.
The wording of the sub-section is being seen as relating directly to the sole purpose test with respect to superannuation fund advertising campaigns and sporting sponsorships and also to the opening the way for the examination of the relationships between industry funds and trade unions.
The terms of reference also open the way for the Royal Commission to examine “culture and governance practices” and whether outcomes “result from other practices, including risk management, recruitment and remuneration practices, of a financial services entity, or in the relevant industry or relevant subsector”.
The terms of reference will mean that the Royal Commission will be able to traverse many of the issues raised by the Government in justifying its proposed policy changes to superannuation fund governance.
Importantly, the terms of reference also ask the Royal Commission to examine the adequacy of existing laws and policies of the Commonwealth (taking into account law reforms announced by the Commonwealth Government) relating to the provision of banking, superannuation and financial services.