3.1 A different regulatory task

Superannuation presents particular regulatory issues. It is a compulsory product. All who are employed, and very many of those who have been employed, will have superannuation arrangements. Superannuation performance directly affects the public purse by reducing the call on social security payments and other public welfare measures including, but not limited to, housing, care and health measures.

Unlike other financial products (where the main regulatory focus will be upon the circumstances in which the product is acquired and on the continued ability of entities to meet their obligations) the regulatory focus for superannuation must extend to the outcomes that will be delivered to members. The superannuation provider makes no promise about what its future performance will be, but the quality of its performance is important not only to members but also to society generally. And because obtaining proper future outcomes is important, the regulatory task extends beyond issues of disclosure (at and after the time of acquisition of an interest in the product that is offered), and issues of risk management. The importance of outcomes in the regulation of superannuation is reflected in two prudential standards APRA has proposed[1] and the Bill presently before Parliament that seeks to introduce an obligation on trustees to perform an ‘outcomes assessment’ for MySuper products.[2]

In 2010, the Cooper Review recommended that APRA’s mandate be broadened to include the task of overseeing and promoting the efficiency of the funds it regulates and the system in which it operates.[3] It proposed that APRA be given general standardsmaking power in relation to superannuation in order, among other things, to ‘drive efficiencies in the industry’,[4] and ‘improve transparency of outcomes’.[5]

In 2012 and 2013, changes were made to the SIS Act to alter the obligations of superannuation trustees and directors to insert, relevantly, sections 29VN and 29VO, and to give APRA the power to issue prudential standards in relation to superannuation.[6]

More recently, the Productivity Commission said, in its report on superannuation[7] that ‘[c]onduct regulation arrangements for the superannuation system are confusing and opaque, with significant overlap and no clear delineation between the roles of APRA and ASIC’. It observed that ‘APRA is best placed to focus on licensing and authorisation to promote high standards of system and fund performance’, while ASIC is best placed to regulate the (mis)conduct of trustees and advisers, and to oversee the appropriateness of products (including to particular target markets) and disclosure.[8] No less importantly, it suggested that ‘[r]egulators also need to be more confident and member-focused in the manner in which they regulatebecoming “member champions” The role of regulators is ultimately to protect member interests.[9]

In a Background Paper prepared for the Commission, Professor Pamela Hanrahan identified the regulatory overlap as explained by ‘the steady expansion of APRA’s responsibilities into areas of non-financial risks, which often crosses into the realm of conduct regulation’.[10] Hence, Professor Hanrahan said, maladministration of a superannuation fund involving breach of the laws governing use of members’ funds,[11]

if it is detected by regulators, may potentially trigger protective, remedial or enforcement action by APRA – for breach of the RSE licensing laws, breach of prudential standards, or breach by the trustee or its directors of the SIS Act duties and statutory covenants – and by ASIC – for breach of AFS licensing laws, breach of the SIS Act statutory covenants relating to reporting and disclosure, or breach by the directors of their Corporations Act duties as directors of the RSE licensee.

There is, therefore, evident scope for doubt about which regulatory agency will and should act in a given circumstance. Not only that, the powers and remedies available to the two agencies are not identical.[12]

[1]See, eg, APRA, Response to Submissions, Strengthening Superannuation Member Outcomes, December 2018, 4.

[2]Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No.1) Bill 2017 (Cth) Sched 1.

[3]Cooper Review, Final Report, Ch 10, Recommendation 10.1, 310.

[4]Cooper Review, Final Report, Ch 10, Recommendation 10.2, 311.

[5]Cooper Review, Final Report, Ch 4.

[6]Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Act 2012 (Cth) and Superannuation Legislation Amendment (Service Providers and Other Governance Measures) Act 2013 (Cth). See also Background Paper No 25, 1417.

[7] Productivity Commission, Report 91, Superannuation, Assessing Efficiency and Competitiveness, 21 December 2018, 459.

[8] Productivity Commission, Report 91, Superannuation, Assessing Efficiency and Competitiveness, 21 December 2018, 43.

[9] Productivity Commission, Report 91, Superannuation, Assessing Efficiency and Competitiveness, 21 December 2018, 43.

[10] Background Paper No 25, 23.

[11] Background Paper No 25, 24.

[12] Background Paper No 25, 24.