Reflections on ‘conduct’ should be a critical focal point for superannuation trustees after the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Financial Services Royal Commission) and the Productivity Commission’s Superannuation: Assessing Efficiency and Competitiveness report. This is how members experience a superannuation trustee’s culture and its compliance efforts. And, most importantly, how members experience superannuation trustees seeking to fulfil their fundamental duty to act in the best interests of members.

Superannuation is a critical financial asset for Australians, and for some, it is their only significant saving for financial security in their retirement years. The superannuation industry is worth over $2.8 trillion, with around 15.6 million Australians currently saving for their retirement. Together with APRA, ASIC is determined to improve the fitness of our superannuation system to ensure better outcomes for members. And we want to work with the superannuation industry to achieve this goal.

Conduct regulator for superannuation

Earlier this year, we released our Corporate Plan for 2019 to 2023, which outlines how we aim to achieve our vision for a fair, strong and efficient financial system for all Australians. We will focus on ways to address consumer harm, punishing wrongdoing, and encouraging better culture and behavior—including a greater emphasis on fairness and professionalism—throughout the financial services industry.

The Government’s response to the Financial Services Royal Commission and the Productivity Commission is that ASIC should be the conduct and disclosure regulator for superannuation, while APRA remains the prudential regulator responsible for system and fund performance. Consistent with this response is that one of ASIC’s key priorities is delivering as a conduct regulator for superannuation.

Other key priorities of ASIC are also relevant to the superannuation industry:

  • High-deterrence enforcement action;
  • Prioritising the recommendations and referrals from the Financial Services Royal Commission;
  • Addressing harms in insurance;
  • Improving governance and accountability;
  • Protecting vulnerable consumers; and
  • Addressing poor financial advice outcomes.

How are we translating these organisation-wide priorities into action focused on the superannuation industry? At present the key areas of focus for ASIC’s work in superannuation include:

  • Advice in superannuation;
  • Insurance in superannuation;
  • Fees and cost disclosure;
  • Taking action against misconduct by super trustees.

ASIC is also contributing to a significant stream of law reform arising from the Financial Services Royal Commission and Productivity Commission final reports. This includes law reform in relation to expanding ASIC’s role to support ASIC being the primary conduct regulator for superannuation.

Advice in superannuation

We are completing a market scan of advice services offered by superannuation funds to their members. This includes understanding the different models of financial advice provided by 25 superannuation funds across the Retail, Corporate, Public and Industry sectors, and testing a sample of advice to see the quality of advice provided to members.

With APRA, ASIC has also been undertaking work seeking to address the erosion of superannuation balances as a result of members paying inappropriate or excessive advice fees from their superannuation accounts. Earlier this year, we communicated to trustees in a joint ASIC/APRA letter about the need for strong governance, risk management and oversight processes to ensure that only authorised and appropriate fees and charges are deducted from the members’ superannuation accounts. This work is ongoing.

Insurance in superannuation

Superannuation trustees have a crucial role to play in the delivery of insurance to their members. With millions of Australians holding insurance through their superannuation funds, ASIC will look to address the harm caused to members by inappropriate and poor value insurance. We expect trustees to act in their members’ best interests by providing access to affordable insurance products that are suitably designed for their members, having regard to the potential for inappropriate erosion of superannuation balances.

We are examining the role of superannuation trustees, encouraging new norms of behaviour in relation to their communication and claims processes for insurance in superannuation. Our recent report on TPD insurance continues to highlight the need for focus on this issue by the industry (see Report 633 Holes in the safety net: A review of TPD insurance claims).

This involves engaging with industry—trustees, administrators and insurers—on implementation of the Insurance in Superannuation Voluntary Code of Practice and on the progress being made in improving industry practices. We recently commented on our views to date in a letter to the Code owners.

We are also reviewing how trustees set their insurance defaults, such as occupational defaults. As outlined in our recent joint report with the Dutch Authority for Financial Markets (Report 632 Disclosure: Why it shouldn’t be the default), industry needs to ensure products deliver good outcomes and disclosure does not excuse the delivery of unsuitable products.

We are also looking at how regulatory change in relation to insurance in superannuation is implemented by trustees. The Protecting Your Super Package and Putting Members Interests First changes require trustees to think carefully about how to provide a balanced, factual communication that meets the needs of the relevant members.

Fees and cost disclosure

In the spirit of members’ bests interests, trustees have an obligation to ensure that consumers receive transparent and useable information that helps them understand fees and costs, compare products, and make confident and informed choices. To this end, we are continuing our work on fee disclosure obligations across both superannuation products and managed investment schemes.

Following the consultation with industry earlier this year, we are in the process of finalising changes to the fees and costs disclosure regime Regulatory Guide 97: Disclosing fees and costs in PDSs and periodic statements (RG 97). We will soon share an updated RG 97, which incorporates feedback from industry as well as the outcomes of our consumer testing. The updated RG 97 will provide greater clarity on the fees and costs disclosure obligations for industry and help improve compliance.

While we recognise the limitation of PDSs in promoting member understanding and comparability of products, consistency in fee and cost disclosure across the industry still plays an important role and contributes to transparency.

Trustees on notice for conduct

Members expect super trustees to do their best to safeguard and improve retirement income, and the need for trustees to act in the best interests of their members is now a matter of culture and approach as much as legal prerequisite. ASIC is committed to ensuring that trustees are accountable to their members in line with community and industry expectations, and where appropriate, we will take enforcement action when trustee conduct falls short.

In an effort to deter any future trustee misconduct, we will take action against historical and present wrongdoing. This includes trustee behaviour that causes monetary loss to consumers, financial exclusion, loss of market integrity and confidence, and behaviour that undermines competition. ASIC is also putting trustees on notice for persistent underperformance. While not illegal in itself, underperformance is often an indicator of misconduct and can coincide with breaches of the law arising from conflicts of interest, failure to act in members’ best interests, and lack of diligence by trustees. We will communicate publicly our ongoing efforts to improve trustee culture and conduct.

2019 ASFA Conference

If you’re interested to hear more from the regulators, don’t miss attending Parallel session 5C National Risk and Compliance Discussion Group – 4.00-5.10pm Thursday 14 November