Financial regulators are talking tough after the dressing down they received from the Hayne banking royal commission.
But the big two are at odds about how they will deal with the superannuation industry.
Both the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority came out with guns blazing in recent days.
Funds on notice
New ASIC deputy chair Karen Chester told The Australian Financial Review Wealth Summit in Sydney on Wednesday that she had underperforming super funds in the gun.
“These funds are on notice. We are looking to litigate. If the fund has a persistently underperforming product or they themselves have persistently underperformed over the long term and they have not done anything to address … we’re going to enforce the law.”
APRA has also beefed up and the two will act in tandem.
Ms Chester said APRA will be “enforcing the elevated outcomes test and forcing people to exit. If they don’t, we’ll go after them”.
ASIC can act under current Corporations Law with new civil penalties attached and demands that funds act “efficiently, honestly and fairly – emphasis on the word ‘fairly’,” she said.
Just how many funds are shonky
The trouble with that claim is that ASIC and APRA seem to have very different views on which funds should be hit.
“You’re looking at at least 30-plus funds that’ve persistently underperformed, plus one in three MySuper products and choice products,” Ms Chester said.
“Plus you’ve also got 93 funds under $1 billion in funds under management. So you’re looking at perhaps close to 100 funds exiting.”
That is a huge figure for miscreants, given there are only 194 pooled superannuation funds regulated by APRA.
APRA has been far more sanguine, with deputy chair Helen Rowell saying at another conference recently: “Of the 28 outlier funds we identified 18 months ago, only three have still not responded adequately – and these will soon be resolved.”
So, 25 of the funds initially underperforming have either been closed, merged or got their acts together.
That’s a huge difference from the 100 funds ASIC sees as underperforming.
Claims of the number of underperforming funds are problematic because no one has yet developed a definition that can be used across the regulatory world.
Andy Schmulow, lecturer in law at the University of Wollongong, said APRA had collected data that the Productivity Commission said was “useless” when it came to do its review on the superannuation system.
“The Productivity Commission then collected data according to its own criteria,” Dr Schmulow said.
“APRA has been under a lot of pressure” to provide detail of how an underperforming fund would be identified.
“It hasn’t provided details as it has no idea. It’s scrambling around trying to come up with some parameters, Dr Schmulow said.
An APRA spokesman told The New Daily the regulator will use “some new data, including member outcome assessments” to develop some measures for judging underperformance.
Helen Hodgson, a law professor at Curtin University, said ASIC could not move that quickly to close down underperforming super funds.
“There would be a lot of natural justice and procedural issues that would have to be gone through” before such action could be taken,” Professor Hodgson said.
As far as deciding where the responsibilities of ASIC and APRA lie, “it could be messy determining who does what”, she said.
If Labor wins the May election, it has pledged to take a tough line against regulators.
Both ASIC and APRA will have to develop plans to implement royal commission recommendations by August 1. They will have to report their progress on implementing recommendations every six months.
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