ASIC boss signals big super shake-up

Summary: The head of the corporate watchdog says many superannuation funds have lost their purpose.

Key take-out: ASIC wants funds to remove all conflicts of interest, and industry leaders to get more serious.

Australian Securities and Investments Commission chairman James Shipton has delivered a blunt message to Australia's $2.6 trillion superannuation sector: change your behaviour or face the consequences.

In a speech delivered to the Financial Services Council annual summit in Melbourne on Thursday, Australia's chief corporate watchdog said the need to restore trust in the sector was imperative, with many super funds more focused on making money for themselves than acting in the best interests of their members.

“To be blunt, there has been too much focus in many parts of the superannuation sector on exploiting opportunities to make money from Australians instead of focussing on the responsibilities that come from being the custodians of other people's money,” Shipton said.

His comments come just ahead of the next round of public hearings in the financial services Royal Commission, which from August 6 will be specifically focused on the superannuation sector.

Shipton said the trust deficit in the financial sector, including superannuation, is palpable and the industry needs to recognise it exists for both an economic and societal purpose – to provide a retirement platform for Australians.

“There has been a great deal of talk, indeed rhetoric, around the trust deficit and the cultural reforms needed in finance. Now is the time to move from rhetoric to reality.”

Shipton said that to restore trust, the industry needs to completely remove all conflicts of interest, there needs to be greater attention by senior management to address poor conducts issues, and financial industry leaders need to refresh their strategy for dealing with regulators.

“First, there needs to be wholesale review of conflicts of interests in firms, sectors and markets to identify, manage and, if appropriate, remove every single conflict of interest,” he said. “As the Royal Commission hearings have highlighted, conflicts of interests have been the root cause of much of the identified misconduct.”

Shipton added that there is an urgent need for investment in systems, procedures and policies by financial companies that better and more quickly identify emerging conduct and systemic issues so they can be reported to ASIC and resolved more quickly.

On his point around dealing with the regulators, Shipton said the Royal Commission hearings had highlighted that some dealings with regulators were totally unacceptable and arguably illegal.

“So, I want to encourage industry leaders to ask themselves if they have a clear strategy for engaging with ASIC and other regulators? And importantly – are your actions consistent with your strategy? And is there appropriate accountability to ensure this happens?”

Super funds have lost the plot

On the superannuation sector specifically, Shipton said the industry has effectively failed its key objective to act in the best interests of members and this must stop if Australians are to have real trust in the system.

Examples include:

• The exploitation of consumer disengagement and consumers' knowledge and decision biases – for example, processes by funds that make it unreasonably difficult for consumers to opt out of insurance.
• Failures to promote informed decision making – for example, misleading promotions that prioritise marketing over accurate disclosure of key terms.
• Poor financial advice about superannuation issues and options – for example, in relation to setting up a SMSF or switching superannuation products.
• Poor treatment of consumers in their interactions with the super system – for example, delays and difficult processes in insurance claims handling and general complaints handling.
• Practices that make it difficult for vulnerable consumers to access their super – for example, lndigenous Australians in remote areas whom are eligible to access superannuation benefits, but are unable, or whom have significant difficulty, in doing so.
• Defensiveness when it comes to transparency about fund operations – for example, a resistance to disclosing investment holdings. This is indefensible when, as I said before, it is other people's money.

ASIC joins APRA and ATO in super monitoring

Shipton said that ASIC would use all its regulatory tools to:

• change behaviours to drive good consumer and investor outcomes;
• act against misconduct to maintain trust and integrity in the financial system;
• promote the strong and innovative development of the financial system; and
• help Australians to be in control of their financial lives.

The chairman said some of ASIC's recent enforcement actions in superannuation include:

• Court enforceable undertakings from CBA and ANZ relating to superannuation product distribution practices.
• The regulator is also awaiting judgement in its civil penalty proceedings against Westpac's superannuation subsidiaries arising from their telephone campaigns targeting superannuation fund members.
• Securing infringement notice penalties for false and misleading statements in marketing by superannuation trustee Tidswell and promoter Spaceship.

“Given our important role regulating the distribution of superannuation products we will continue to monitor new superannuation industry entrants to ensure that marketing and promotional claims are consistent with the underlying features of the product,” he said.

“Our strengthened superannuation team will also move towards a more intensive engagement model, where superannuation stakeholders will deal with specific ASIC staff on a more consistent and regular basis.

“We plan to do everything within our powers to improve member outcomes in superannuation.”