Superannuation trustees and directors who fail to act in the best interests of their members could be fined as much as $500,000 or jailed for five years under new laws that have cleared federal parliament.
Trustees will also need to assess annually whether their products are delivering financially for their members.
The laws, aimed at improving outcomes for superannuation members, passed the House of Representatives on Thursday.
That comes after they cleared the Senate in February, with amendments from Labor.
The changes also ramp up powers for the Australian Prudential Regulation Authority (APRA), which had been powerless in enforcing honest behaviour by superannuation funds due to a lack of legislative muscle, the banking royal commission was told in 2018.
The commission also heard that the Productivity Commission felt that regulation of the superannuation sector was suffering from unclear delineation of the responsibilities of APRA and the Australian Securities and Investments Commission (ASIC).
Quoting from a Productivity Commission document Mr Hodge read: “It has become increasingly unclear which regulator has primary responsibility for trustee conduct with the risk of misconduct falling between the cracks and a lack of clear regulator accountability.”
During commission hearings, counsel assisting Michael Hodge QC put it to APRA chair Wayne Byers that the reason the regulator “has never sought to seek, for example, a declaration that particular conduct has contravened section 52 is that it can’t obtain a civil penalty to accompany that declaration. Is that an explanation you’re offering?”.
Mr Byers replied: “It’s one factor, yes”.
Section 52 of superannuation legislation is the crucial measure that demands funds act honestly and in the interest of members regardless of conflicts of interest.
Mr Byers also said that APRA had limitations on how closely it could delve into financial institutions’ operations.
This reality meant “there are limits to supervision, and that we are not down looking at transactions… we don’t audit accounts. To some extent, we are dependent on institutions bringing issues to our attention”.
He said at the time that APRA had now received breach notices for the offences at 10 different superannuation entities and observed “the evidence that’s already been produced through the ASIC reports indicate it’s a – it’s a widespread and significant problem, yes”.
The news comes on the same day that IOOF managing director Christopher Kelaher left the company which been focusing on “restoring trust” amid a shareholder class action and court action by APRA.
Mr Kelaher had been on leave since December, when APRA moved to disqualify him and other top brass over accusations they had failed to act in members’ interests.
IOOF said on Thursday that Renato Mota will continue as acting chief executive following the departure by mutual consent of Mr Kelaher, who will be paid $1.27 million in lieu of his notice period.
“In the interests of the company, it is time for IOOF to move forward under new leadership,” said Mr Kelaher, who had led the funds manager for a decade.
APRA in December moved to disqualify a total five senior IOOF employees and impose new licence conditions, saying it had concerns dating back to 2015 and that IOOF had consistently failed to address them.
Shares in IOOF, which had already been mauled at the financial services royal commission, lost more than a third of their value on the day the action was made public.
A Sydney law firm in March launched a shareholder class action, citing royal commission evidence that IOOF subsidiaries allegedly breached their trustee duties, and that directors and officers knew about it.
IOOF chair Alan Griffiths said the company will vigorously defend the “misconceived” accusations.
IOOF shares fell 1.54 per cent, by 3.45pm AEDT on Thursday, and are down more than 45 per cent over the past 18 months.