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MTAA Super to feel the blowtorch

The drums were beating for change at the top of one of the country's biggest super funds, MTAA Super, in advance of crisis talks before the launch of a new motoring body that has a mandate for radical change.

The drums were beating for change at the top of one of the country's biggest super funds, MTAA Super, in advance of crisis talks before the launch of a new motoring body that has a mandate for radical change.

The new organisation, the Australian Motor Industry Federation (AMIF), was launched in Melbourne yesterday and was spawned out of the old Motor Trades Association of Australia Limited (MTAA).

It was renamed because motor association members felt the MTAA brand was confusing and had been dogged by too much controversy.

MTAA Ltd, which is the owner of the trustee, and which is now part of the AMIF, will put the blowtorch on MTAA Super, which has been one of the worst performing industry funds, and is being closely monitored by the Australian Prudential Regulation Authority (APRA).

MTAA Ltd owns all of the shares in MTAA Super. This gives it the right to nominate four of the eight directors of the super fund.

It is believed that a series of resolutions were put to a meeting on Sunday that revolved around changes at the top of MTAA Super.

MTAA Super has been under scrutiny by the financial regulator since 2004 when it raised concerns about the trustee's organisational structure and potential for conflicts of interest. The regulator has also addressed other corporate governance issues, it was revealed in a Federal Court case last year.

It comes as BusinessDay can disclose that a letter written by MTAA Super's boss, Michael Delaney, on August 4, 2010 to MTAA's lawyers, Greenfields, reveals that APRA's 2010 review report on MTAA was "sharply critical on many matters, extended the trustee's supervisory standing, demanded a range of things, suggested others and was in serious error in a variety of ways and things".

The letter disclosed that the review was so critical that a workshop of directors and executives was convened to do a line-by-line analysis of the report on July 28.

Another letter written by Delaney to the trustee's directors, and published in this column yesterday, exposed the fraught relationship between MTAA and APRA in recent years.

The letter said the relationship had deteriorated in recent years and had culminated in the financial regulator issuing the trustee with a show cause notice. An MTAA spokesman said the notice was not about its licence but he declined to give more detail. Both letters were written almost a year ago and were therefore not contemporary, he added.

Interestingly, the letter to trustee directors notes that a meeting was scheduled for August 25, 2010 to discuss various issues, including matters and prospects with APRA.

The day after the scheduled meeting, MTAA Super's chairman, Allan Hawke, resigned.

Publication of the contents of Delaney's letter to trustee directors has caused much debate about why it has taken the regulator so long to make an announcement about MTAA and the issues it has had with the super fund and its trustee.

The issue of MTAA's performance raises questions about the country's default superannuation fund scheme. The regulatory separation between APRA and the Fair Work Australia framework for default super means the regulator cannot remove a super fund from an award because Fair Work Australia has legislative power over default fund selection.

Even more disturbing is that Fair Work Australia decided in 2008 against using any criteria, or developing a process, for default fund selection. This decision was made despite the then federal minister for superannuation, Nick Sherry, asking it to do so, in a submission in 2008 to the Australian Industrial Relations Commission on award modernisation and default superannuation funds.

The upshot is that because no criteria is used for selecting a fund in an award, APRA and the Australian Securities and Investments Commission are unable to remove a fund. Put simply, the system is devoid of any process for delisting funds, even when regulators have identified a problem. Neither is there a a process for delisting a super fund from an award.

With so much at stake, it is an issue in desperate need of reform.

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