The Australian financial regulator has three superannuation funds in the gun for closure after whittling down its hit-list from 28 underperforming “outliers” over the past 18 months.
However, it remains legislatively hamstrung in its ability to act against them and in a new review will initially ignore the worst-performing sector.
The Australian Prudential and Regulation Authority (APRA) deputy chair Helen Rowell made the admission at the conference of major super funds on the Gold Coast this week.
A question of priorities
She also raised questions about APRA’s priorities in dealing with underperforming funds when she explained its strategy in assessing newly introduced standards for member outcomes.
The reviews will include new performance criteria for “investment performance; fees and costs; insurance; and scale and sustainability”.
“Initially this will just be for MySuper products, but will be broadened to include choice products as our data collection in this area expands and we have confidence in its reliability.”
The problem with that is the great majority of underperforming funds are for-profit choice products, into which members have generally been channeled by advisers. My Super funds are defaults for the vast majority of workers who are directed by their employers on taking a job.
Ms Rowell also cast doubt on the ability of APRA to act against underperforming funds.
“It is a pity that the Members Outcome Bill – which provides an expanded directions power and the ability to take civil penalty action for breaches of obligations to members – has not yet passed the Parliament, as our ability to compel action is more limited than we would like,” she said.
Powers are limited
“But we will be using whatever tools and powers we have to get action. Of the 28 outlier funds we identified 18 months ago, only three have still not responded adequately – and these will soon be resolved.”
Ms Rowell did not say how the regulator could act against the recalcitrant funds.
“For now, we don’t intend to disclose which funds make this outlier list, recognising that being effectively labelled among the ‘worst-in-show’ is likely to hurt the financial interests of members,” Ms Rowell said.
The legislation Ms Rowell referred to would give APRA powers to force mergers of underperforming funds or those faced with collapse. Currently the regulator can use suasion, but funds can refuse to follow its wishes if they choose.
The new legislation is likely to pass Parliament eventually because it has support from both major parties. But an election and its resulting political gridlock will come before the legislation can pass.
APRA also said recently it would take a tougher response to breaches by institutions it regulates.
“APRA is reviewing its approach to enforcement in light of the BEAR [banking executive accountability regime] and the CBA Prudential Inquiry, as well as the royal commission’s observations that APRA should develop a stronger appetite for formal enforcement action,” Ms Rowell said.
The final review will be presented to APRA members by the end of March, after which it intends to publish a new enforcement strategy.
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