I spotted this article in the Fin today about APRA’s new powers in respect of industry superannuation funds. I won’t be holding my breath to see whether they name some trustees who are clearly out of their depth and have absolutely no investment expertise. But we can hope, I guess. In all likelihood, there will be some pathetic reasoning that because Unionist Bloggs has been a trustee of an industry superannuation fund for some time, then he/she must have some expertise.
Australian Prudential Regulation Authority chairman John Laker plans to act against conflicts of interest and a lack of skills on superannuation boards after concerns some industry fund trustees lack financial experience, including former union officials.
Dr Laker said that under the regulator’s enhanced powers over the retirement savings industry, APRA would closely examine funds’ boards to check they had the skills and expertise to oversee members’ savings.
“We will continue working with super trustees on a one-on-one basis to ensure that they collectively have the skills and understanding that trustees need to have to look after money on behalf of their members,” he said when asked about industry super funds, which award half their board seats to union representatives.
“It is a journey for the industry on a range of fronts . . . and they will now be supervised on exactly the same basis as our other regulated industries and in all of those industries we spend quite a lot of time working with boards.”
There is a debate in the super industry about the level of appropriate expertise on industry fund boards, where trustees typically represent employer groups and unions in equal number.
This year APRA deputy chairman Ross Jones recommended industry funds appoint more independent directors because they had useful skills and would reduce the potential for conflicts of interest.
In Victoria, construction unions are preparing to dump Cbus as their default fund because they are unhappy it invests in projects run by Grocon.
“We have to make sure that all funds and directors are up to the appropriate standards,” said Fiona Reynolds, chief executive of the Australian Institute of Superannuation Trustees.
“APRA wants to see well-run boards and now they have the powers, we expect them to step in where they deem it necessary.”
In the past, APRA only had the power to issue guidance on best practice for super funds. Under changes which start in July, it sets prudential standards for the industry.
Super funds will need to ensure key personnel, including trustees, meet a “fit and proper” test, which must be reassessed annually, under the changes. Boards must have mechanisms to test trustees’ performance on an annual basis and have a charter that sets out trustees’ roles and responsibilities.
Super funds will be obliged to show they have considered their members in regard to performance fees, costs and the tax consequences of investment strategies.
The government is considering a Treasury recommendation to give APRA pre-emptive powers to step-in to remove trustees, directors or officers of super funds where they anticipated a breach of the law.
APRA has powers to wind up or investigate super funds, but these are only available after a disaster such as the $176 million collapse of Trio Capital in 2009. APRA will get the power to take legal action against trustees who fail to put the interests of super fund members first.