Download Trustee Corporations Association of Australia

Trustee Corporations
Association of Australia
Options for
Improving the Safety
of Superannuation
January 2002
Options for Improving the Safety of Superannuation
A.
Introduction
The Trustee Corporations Association of Australia (the “Association”), formed in 1947,
is the national body for the trustee company industry. It represents 17 organisations,
comprising all 7 Public Trust Offices and all but 2 of the 12 private statutory trustee
corporations.
Association members have been operating for over a century, and have built a reputation
of trust in the community based on their integrity, expertise and professionalism. While
perhaps best known as being the only corporate entities authorised to administer deceased
estates, trustee companies now provide a wide range of services in the areas of:
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private wealth management, including wills, powers of attorney,
personal trusts, guardianships, estate planning, tax advice, and acting
as trustee or providing administrative services for small superannuation
funds,
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charitable trusts and foundations, including for medical research,
galleries, museums, and educational scholarships,
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funds management, offering most types of unit trusts and common
funds,
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corporate activities, including
registry, custody, securitisation,
compliance monitoring, and acting as trustee or administrator for
non-family superannuation funds.
Members in aggregate currently have capital of about $600 million and manage or hold
on trust for beneficiaries around $300 billion of assets.
The Association welcomes the opportunity to comment on the Issues Paper on Options
for Improving the Safety of Superannuation released by the Government. We believe
that the present regulatory regime for the superannuation industry needs to be
strengthened in order to adequately protect the retirement incomes of millions of
Australians.
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Options for Improving the Safety of Superannuation
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Superannuation is a “special” a type of managed investment product. Under the Wallis
regulatory model, superannuation funds generally fall within the prudential supervision
responsibilities of the Australian Prudential Regulation Authority (APRA).
Funds defined as Self Managed Superannuation Funds (SMSFs) are an exception, and are
regulated by the Australian Taxation Office (ATO) for compliance with the retirement
incomes policy of the Superannuation Industry (Supervision) Act (SIS).
Other managed funds are supervised by the Australian Securities and Investments
Commission (ASIC) under a disclosure-based regime.
Allocating superannuation funds to APRA reflects the fact that:
-
superannuation is compulsory,
-
many people do not have any choice as to which fund their money goes into,
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superannuation is an important part of the Government’s retirement incomes
policy,
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the amounts involved are very large, and
-
the consequences of superannuation funds failing are very severe for the
individuals concerned.
The Association believes that, as a general principle, the supervisory framework for
superannuation, given the size and nature of the money involved, should be at least as
robust as that applicable to managed funds.
We acknowledge that recent problems within the superannuation industry have been
confined to a relatively small number of funds and their operators. Those failings,
however, caused large financial losses and severe emotional stress for the thousands of
people affected.
APRA has noted that most regulatory enforcement actions in recent years have involved
the 3,000 or so funds in the corporate and industry sector - that is, those funds permitted
to operate without an Approved Trustee or licensing arrangements.
The greatest risk
has tended to be found at the small end of that sector – that is, the 1,800 or so
employer-sponsored funds with assets of less than $5 million.
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Options for Improving the Safety of Superannuation
Problems can, of course, also arise with funds operated by Approved Trustees – the
failure of Commercial Nominees of Australia Ltd (CNA) is clear testimony to this. In
that case, investors in the 475 or so Small APRA Funds (SAFs) managed by CNA
suffered significant losses, essentially as a result of imprudent investments, and
investments not always at arm’s length.
Those problems in the superannuation industry, together with the failure of HIH
Insurance, have raised questions about the balance between regulatory efficiency and
regulatory effectiveness that was built into the Wallis financial supervision framework.
The CEO of APRA has noted that:
“the strength of adverse community reaction to these events indicates a marked
divergence between public expectations about the outcomes of prudential
regulation and those envisaged in the Wallis Report.
In particular, the
community’s very low tolerance for institutional failure has been revealed”.1
As evidenced by the HIH episode, this “expectation gap” results in pressure on the
Government to use taxpayer funds to provide compensation for losses suffered by
investors in regulated institutions. This highlights the importance of the supervisory
framework incorporating appropriate measures aimed at preventing serious problems
developing in the first place.
Further, because no system realistically can eliminate all problems, those parties involved
in managing other people’s superannuation savings should be entities with appropriate
financial substance, or with clear access to the necessary financial resources. Having
substantial capital at risk will better ensure focus on appropriate behaviour. It will also
provide a greater capacity for investors to be compensated by fund operators for losses
due to maladministration, negligence or fraud, thereby reducing the likelihood of claims
on the public purse.
The Association submits that, while the current focus might be on the safety of small
Corporate Funds, the growing complexity of superannuation requires that the prudential
framework be sufficiently robust to provide adequate protection against problems that
might arise in any sector of the industry. The HIH debacle, and other failures such as
Thompson, GJ – “Institutional Self-Regulation: What Should be the Role of the Regulator?”. Talk
to National Institute of Governance/PriceWaterHouse Legal Seminar, 8 November 2001.
1
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Options for Improving the Safety of Superannuation
National Australia Bank’s HomeSide operation, demonstrate that large, sophisticated
financial institutions are not immune from serious risk management shortcomings.
B.
Risks to be addressed
In determining the elements that might make up a sound framework for APRA’s
prudential supervision of superannuation funds, three broad types of risk should be
considered:
1.
Investment risk
Investment risk is the risk of loss from an adverse movement in the value of assets held
by a superannuation fund or managed investment scheme.
We see it as appropriate that superannuation members (at least in the case of
accumulation funds) should bear the risk that a fund might “underperform” because of
adverse market conditions (as do managed fund investors).
2.
Concentration risk
Concentration risk is the risk of loss due to insufficient diversification in the investment
portfolio of a fund or scheme.
The Association agrees that APRA’s prudential supervision of superannuation funds
should generally seek to limit concentration risk by requiring appropriately diversified
portfolios.
No prudential supervision is applied to SMSFs. These are funds with fewer than 5
members, all of whom must be trustees of the fund. No member may be an employee of
another member, unless the members concerned are relatives.
A SAF also must have fewer than 5 members, but may comprise employers and
employees who are not related. Many SAFs (we estimate up to 90%) are family funds,
like SMSFs, but have chosen to appoint an Approved Trustee to avoid the responsibilities
and administrative requirements associated with being a trustee, while still wishing to
maintain a higher degree of control over investments than is available with larger funds.
We submit that, in regard to concentration risk, a lighter regulatory touch is warranted in
the case of SAFs compared with larger funds on the basis that SAFs are essentially
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Options for Improving the Safety of Superannuation
“Do-It-Yourself” (DIY) funds, similar to SMSFs regulated by ATO. DIY funds are
deliberately chosen by those small groups of superannuants wanting greater investment
flexibility, within the SIS requirements.
It might be noted that the principle of a lighter regulatory touch for small groups of
investors is also captured in the Managed Investments Act (MIA), in that an exemption is
generally granted to groups of less than 20 persons.
3.
Operational risk
Operational risk can be defined as the risk of loss resulting from shortcomings in
systems, people, and internal controls, and from external events.
It encompasses
inadequate corporate governance, including maladministration, negligence and fraud.
It is generally accepted that operational risk represents the greatest risk faced by most
superannuation funds and managed investment schemes.
We believe that the respective regulatory arrangements, through prescribing an
appropriate package of capital and insurance for commercial service providers, should
ensure that there is reasonable cover, for both superannuants and investors in managed
funds, against loss due to operational risk.
C.
Suggested prudential framework for superannuation
The prudential framework for superannuation entities should be as consistent and simple
as possible. It should entail appropriate accountability and independence. It should be
built on a universal licensing regime for trustees and a system of registration for funds.
Major policy requirements should be embodied in Prudential Standards.
At the same time, the likely cost of supervisory requirements needs to be carefully
considered against the expected benefits in terms of greater investor protection.
1.
Accountability
The present regulatory framework for superannuation under SIS, like that for managed
funds under MIA, is based on the concept of a single “responsible entity” (RE).
Nonetheless, we submit that this is a misnomer. In reality, there is not now, and never
has been, a single party responsible for the running and oversight of superannuation funds
or managed investments.
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There are, in fact, a number of entities involved:
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The trustee(s) under SIS – this may be a For Profit corporate body or a group
of individual Not For Profit employer/employee representatives. (The MIA
equivalent is the RE).
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An independent financial auditor.
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A compliance entity – for a superannuation fund, this is the compliance
auditor, who is usually also the financial auditor. (For a managed fund, this
is either a Compliance Committee or the board, plus the compliance plan
auditor, who can be an auditor from the same firm that conducts the financial
audit, but cannot be the same individual.)
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A custodian - at present, superannuation and managed fund arrangements can
involve self-custody, related-party custody, or custody by an independent
third party.
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The regulators - for superannuation funds, APRA and ASIC. (ASIC only for
managed funds.)
We submit that in the event of serious loss by a fund, all parties will be held responsible
if they are culpable.
While regulatory authorities may not be able to be directly
prosecuted, there will be pressure on the public purse.
It is totally inappropriate, in our view, to deny members of funds suffering loss the ability
to take action against all parties contributing to that loss. However, while the concept of
a “single” responsible entity is a misnomer, it is imperative that the operator of a fund
remain a fully responsible entity, that can never walk away from losses caused by its own
actions or those of its agents.
2.
Independence
The Association believes that a certain degree of independence between the various
entities involved in managing other people’s money is critical for adequate investor
protection.
Elsewhere in the world, it is mandatory that the compliance/custody entity be
independent of the scheme or fund operator.
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(a)
Independent financial auditor
Recent events, including the failure of HIH and the collapse of Enron in the US, have
highlighted the importance of investors being provided with reasonable assurance by an
independent, appropriately qualified party that the financial statements give a reliable
indication of the health of a company or a fund.
(b)
Independent compliance entity
The Association believes that the proper conduct of financial operations, including
superannuation funds, requires effective ongoing compliance arrangements.
The compliance monitoring function can in theory be handled exclusively by the
regulator through off-site surveillance and on-site visits by staff examiners.
Alternatively, the regulator can look to outsource some of this work to other parties,
while retaining responsibility for the efficacy of the overall supervisory framework.
APRA, of course, already engages in outsourcing in relation to various regulated sectors
through its arrangements with external auditors and actuaries.
In the case of superannuation, the Association submits that the present role of a fund’s
compliance auditor should be strengthened to provide better investor protection. This
important function should be performed on a more regular and timely basis than is
required at present, in order to minimise the likelihood of losses arising from
non-compliance.
Enhancing the independent compliance monitoring role would:
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supplement the expertise of Not For Profit trustees,
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provide better protection for fund members against conflict of interest in
the case of For Profit trustees, and
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minimise the likelihood of fraud in all funds.
We suggest that a formal compliance plan should be a feature of the prudential
framework for superannuation funds, as it is in the regulatory regime for managed
funds. This plan would set out the measures that the trustee is to apply in operating
the fund to ensure compliance with SIS and the fund’s trust deed, including the
arrangements for ensuring that the fund’s assets are clearly identified and held
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Options for Improving the Safety of Superannuation
separately from the assets of the trustee and of any other fund.
The role of the independent compliance entity should be to:
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monitor the adequacy of a fund’s compliance plan,
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monitor the trustee’s performance in relation to its obligations under SIS
and the fund’s trust deed, by assessing compliance with the compliance
plan,
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ensure that competitive prices are negotiated on an arm’s length basis for
services provided to the fund, and
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report on the trustee’s compliance procedures and the conduct of the
fund periodically, say quarterly, to the trustee, and as necessary, but at
least annually, to APRA and fund members.
The breadth and depth of focus of the compliance function work undertaken would
depend on the nature and size of the particular fund being monitored.
Notwithstanding doubts being raised about auditors’ integrity and competence as a result
of developments such as HIH and Enron, we would not suggest that financial auditors
lose the right to undertake this work.
However, we submit that the compliance monitoring role for superannuation funds
should not be restricted to financial auditors. We believe that this function should be
opened up to more competition, and to a deeper and broader pool of expertise, by
licensing other independent entities that can demonstrate that they possess the necessary
skills and financial underpinnings.
(c)
Custodian
At present, SIS requires that the custodian of a superannuation fund (other than an
SMSF) must be a body corporate with at least $5 million in Net Tangible Assets (NTA)
and/or an approved guarantee. APRA has issued a Cross-Industry Circular providing
guidance on custody for entities supervised by APRA, including superannuation funds,
but does not directly regulate the operations of custodians.
The Association submits that competent custody of assets is a fundamental element of a
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Options for Improving the Safety of Superannuation
robust investor protection framework.
Accordingly, all superannuation trustees
generally should be required to appoint a custodian that is appropriately licensed.
The custodian’s role should be to:
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identify and hold fund assets separately, and
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reject instructions from the trustee in respect of those assets if it has
knowledge of fraud.
It is relevant to note that about $100 billion of the $530 billion in superannuation
accounts is invested in managed funds. Thus, the regulatory requirements for managed
funds need to be taken into account when considering appropriate prudential
arrangements for superannuation. Every effort should be made to avoid duplication.
The logical arrangement for a superannuation fund that invests only in managed funds
would be one in which a separate superannuation custodian is not required, on the basis
that all assets are held by the managed fund custodians.
However, the Financial
Services Reform Act (FSRA) does not require custodians of managed funds to be
licensed. We believe that the Working Group should carefully consider the investor
protection implications of this situation.
We do not see that assigning clear roles and responsibilities to compliance entities and
custodians is in any way inconsistent with the primary obligations placed on the trustee
for the prudent management of a fund.
(d)
Investor champion
In addition to its monitoring role, the compliance entity could, on instruction from the
regulator and/or the investors, be called upon to act as the members’ representative in
pursuing remedies against the trustee, its directors and agents (as relevant) should it
become aware of fraud, negligence or maladministration on their part.
Such a role might not be cost-effective for smaller funds, which may need to rely on the
regulator. However, for larger funds with numerous members, that role could allow for
more timely and effective resolution of problems without unnecessary demand on scarce
regulatory resources.
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(e)
Costs
We estimate that qualified entities, in a competitive market, could provide the
compliance, custody, and (as necessary) investor champion functions at reasonable costs.
For example, before the introduction of the MIA in 1998, trustee companies performed
the compliance, custody and investor champion roles for managed funds for around
5-10 basis points p.a. or less, depending on the complexity of the operation.
On this basis, we believe that enhancing the existing compliance monitoring role would
add only marginally to the overall cost of running a superannuation fund, and would be
outweighed by the additional safety enjoyed by fund members.
3.
Licensing regime
The Association believes that, as is the case for other prudentially-regulated sectors, an
appropriate licensing and registration system for the superannuation industry should be
introduced. Importantly, this would enable the regulator to assess the credentials of an
applicant prior to the commencement of operations.
As noted in the Issues Paper, a licensing process allows the regulator to impose
conditions where it has prudential concerns about a fund’s operator. It also provides a
franchise value that is at risk through possible revocation of the licence if the holder fails
to comply with the regulator’s requirements.
We see it as unacceptable that a fund can simply elect to be regulated under section 19 of
SIS, without the regulator having advance input into the size, nature and competency of
the population that it is expected to supervise.
This situation can be compared with managed funds, where:
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potential entrants must register each scheme with ASIC in advance. An
application must include:

the name of the RE which is to operate the scheme,

a copy of the scheme’s constitution, including details of the
investment powers of the RE,
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Options for Improving the Safety of Superannuation

a copy of the scheme’s compliance plan, outlining the measures
to be taken by the RE to ensure compliance with the
Corporations Act (the Act) and the scheme’s constitution, a
statement by the directors of the RE that the constitution and
compliance plan comply with the relevant sections of the Act,
and

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the name of the auditor of the compliance plan.
the RE must be a public company that holds a dealers licence authorising
it to operate a managed investment scheme(s). In deciding whether to
grant a dealers licence to an RE, ASIC takes into account the expertise
and character of the applicant’s responsible officers and the capacity
(including financial resources and adequacy of operating systems) of the
applicant to perform the duties associated with being an RE.
It is difficult to see that the entry process for superannuation trustees and funds should be
any less rigorous than for managed investments.
We submit that all trustees should be required to obtain a licence prior to the
commencement of operations. Close attention should be paid to ensuring that there is no
overlap between a prudential licence and an AFSL.
The present “Instrument of Approval” issued by APRA to For Profit entities that qualify
for Approved Trustee status could form the basis of such a prudential licence.
Applications would be assessed against transparent entry and operating criteria,
including:
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adequacy of resources,
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character, expertise and ability of directors and senior management
of the applicant company,
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adequacy of corporate governance arrangements, including risk
management systems, and
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adequacy of operating systems, including outsourcing arrangements
and contingency plans.
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In the case of Not For Profit trustees, we suggest that the regulator should consider the
combined experience and expertise of the individuals elected to run the fund (either as
directors of a “$2 company” or as members of a “notional trustee entity”), together with
the experience, expertise, capacity and resources of the financial auditor, compliance
entity and custodian to be used by the fund. A licence could have particular conditions
to ensure that those arrangements did not change and increase the risk to members’ funds.
While a system of licensing trustees might discourage some potential entrants, we believe
that the benefits of such a process in terms of a more comprehensive and robust
prudential framework would outweigh concerns in relation to a possible reduction in
competition.
Similarly, we believe that a fund should be registered prior to its commencement
(whether it is to be managed by an existing licensed trustee or a new trustee).
As part of the vetting process, the regulator should take account of the prudence of the
fund’s proposed investment strategy, in terms of the recommended Prudential Standard.
This should overcome the present risk that an imprudent portfolio mix can be entrenched,
with potential adverse consequences for members, before APRA is able to analyse
reports from the fund or conduct an inspection.
An application for registration of a fund should include:
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the name of the fund to be registered,
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the name of the trustee(s) which will operate the fund,
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a copy of the fund’s governing rules,
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details of the investment strategy to be followed by the fund,
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a copy of the fund’s compliance plan,
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a statement by the trustee that the governing rules and compliance
plan comply with the relevant sections of SIS, and
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the name of the fund’s proposed:

compliance entity,
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Options for Improving the Safety of Superannuation

custodian, and

financial auditor.
Further, APRA should have the power to deregister a fund at any time if it felt that this
was in the best interests of members.
4.
Financial underpinning
The supervisory framework should ensure that the various commercial parties involved in
the operation of a superannuation fund have adequate capital and insurance to address
operational risk, including lack of compliance with relevant prudential requirements.
(a)
Approved Trustees
We believe that Approved Trustees appointed to operate superannuation funds should be
required to have appropriate financial underpinning. This should comprise a meaningful
minimum level of NTA (or approved guarantee, or combination thereof), plus adequate
insurance.
Provided NTA is appropriate, we do not see a need for a separate “operating” capital
requirement. Rather, as part of APRA’s licensing regime and ongoing supervision, those
entities should be required to demonstrate that they have appropriate policies in place in
relation to the working capital needed to deal with matters such as replacement of record
keeping systems.
Tougher licensing criteria for Approved Trustees might cause some exits from the
industry. However, this should not necessarily lead to a reduction in competition given
that currently there are about 160 such entities.
Further, a smaller number of Approved Trustees would lower the cost of APRA
oversight.
(b)
Compliance entities and custodians
To further strengthen the financial underpinnings of the superannuation sector, the
compliance entity and the custodian each should be required to hold an appropriate
minimum level of NTA, and adequate insurance.
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(c)
Corporate and industry funds
For Corporate Funds and Industry Funds, scope for conflict of interest is greatly reduced
because the focus is not on operator profit. Therefore, provided the overall package of
trustees and their service providers is assessed as appropriate, we do not see the need to
impose minimum capital requirements on the trustees themselves.
This would risk
destroying that part of the superannuation sector that has the lowest cost, a close link with
members, and is desired and supported by a large part of the population.
Rather, we believe that a trustee licensing regime, together with a requirement that those
funds appoint well-capitalised and insured compliance entities and custodians, will
provide the necessary financial substance, as well as strengthen that sector’s expertise.
5.
Prudential standards
We support the proposal that, as part of a “three-tier” approach to SIS, APRA be given a
specific power to set standards to be complied with by superannuation funds and their
operators. This would provide APRA with greater flexibility and be consistent with
other regulated sectors.
Prudential Standards should be developed for:
(a)
Investment strategies
We agree that the guidance to be given by APRA in respect of the prudent diversification
of a fund’s investment portfolio should be embodied in an enforceable Standard.
While difficult judgements are called for in defining acceptable boundaries, the Standard
should place high-level limits on large exposures, related party dealings, and excessive
concentration of risk. Consistent with our comments in section B1 above, the Standard
should provide scope for SAFs to operate with a greater level of risk/return within the
SIS requirements.
These limits should be subject to ongoing supervisory monitoring.
(b)
Capital adequacy
Consistent with the view expressed above on financial underpinnings, we agree that
APRA should establish a Standard covering minimum capital to be held directly, for all
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commercial entities involved in operating superannuation funds. Those requirements
should take into account the number and size of funds for which an entity is providing
services (to address “double dipping”), and have regard to any risk mitigation achieved
through insurance or other means.
(c)
Outsourcing
Given the importance of outsourcing to the industry, we support the suggestion that a
Standard covering this area should be established for superannuation. This could be
based on the Standard proposed for Authorised Deposit-taking Institutions (ADIs).
It would be important that the appointment by trustees of asset consultants be covered by
this Standard given their significant role in advising trustees on investment strategy. It is
also important that asset consultant are licensed and have appropriate financial
underpinning.
(d)
Governance
Corporate governance is another important area that we agree warrants the development
of an appropriate Standard. We believe that governance will be greatly enhanced by the
strengthened compliance function outlined above.
Nonetheless, we agree there would be merit in APRA developing an appropriate Standard
for internal risk management, perhaps based on Prudential Standard GPS 220: Risk
Management for General Insurers.
D.
Other matters
1.
Fees
The Association submits that in determining the fee structure for APRA-supervised
funds, consideration needs to be given to the difference between SAFs and larger funds in
which investors generally have less control over the structure of their investment
portfolio.
As noted earlier, SAFs and SMSFs are both essentially DIY funds.
There are, however, disadvantages in being a member of a SAF rather than a SMSF.
Whereas a SMSF is given 9 months to lodge annual financial information with the ATO,
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a SAF must lodge that information with APRA within 4 months. Further, whereas the
ATO imposes an annual levy of $45 on each SMSF to cover the cost of regulation, each
APRA-supervised fund, including each SAF, is required to pay a minimum levy of $400.
We submit that this is inequitable. Superannuants should not be denied a low-cost
regulation option simply because they choose to use an Approved Trustee.
We suggest that the aggregate APRA impost on SAFs managed by the one Approved
Trustee should be no more than that on the Approved Trustee of a menu-driven master
fund – that is, 0.025% of assets, capped at $53,000. If a separate levy is to apply to each
SAF, this should be no more than the $45 charged by ATO for SMSFs.
This would prevent the current inequitable situation in which 1,000 SAFs under a single
Approved Trustee face a minimum aggregate levy of $400,000, whereas the APRA
impost on 1,000 clients in a master fund under a single Approved Trustee face a
maximum levy of $53,000.
Similar inequities exist in respect of penalties for late lodgement of APRA returns that
may be applied to Approved Trustees of SAFs, versus non-SAFs.
2.
Annual General Meetings
We doubt that requiring each superannuation fund to hold an Annual General Meeting
would be a practical means of “empowering” fund
members or improving governance
of funds. The cost involved generally would be quite high and it is likely that member
attendance would be relatively low.
We believe that a more effective option, at least for large funds, would be to have the
independent compliance entity available to act as member champion should this be
directed by the regulator or members.
3.
Disclosure
We would support public disclosure, through APRA or ASIC, of the annual reports of
Public Offer Funds, and large employer-sponsored funds. We feel that smaller funds,
including SAFs, should be excluded on privacy grounds.
We note that there are similarities between some superannuation funds and Investor
Directed Portfolio Services (IDPS), which provide investment execution and related
Trustee Corporations Association of Australia – January 2002
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services for managed fund investors.
We suggest that the Working Group should consider whether aspects of ASIC Policy
Statement 148 in respect of IDPS might be adapted to superannuation funds, particularly
in relation to disclosure material required to be provided to investors (refer PS148.50).
This approach might help prevent investments in a mushroom farm being marketed as a
cash management trust, as occurred in the CNA case.
4.
Financial assistance
We believe that enhanced compliance monitoring of fund operations by well-capitalised
and insured entities would reduce the likelihood of Part 23 of SIS being called into play.
Irrespective of this, we do not see a need to broaden the application of that Part beyond
loss due to fraud. To attempt to also encompass loss due to “misleading” conduct would
call for difficult decisions as to what constituted such conduct, and could result in
frivolous claims by investors.
In the event that compensation is to be paid, we believe that decisions as to the level of
assistance (which we suggest should be less than 100% cover) and the funding of
payments (from the taxpayer purse or from or an industry levy) should be made by the
Government in the light of the relevant circumstances at the time.
5.
Longer term reform
As a longer term proposal, we believe that consideration should be given to “carving up”
SIS such that:
-
retirement income policy is moved to a new Act administered by the ATO,
-
consumer regulation matters are incorporated in the Corporations Act,
administered by ASIC, and
-
prudential supervision matters remain in SIS to be administered by APRA.
At the same time, the opportunity should be taken to eliminate unnecessary detail or
prescription in each of those areas. We acknowledge that this would be a major task and
that there would be some grey areas regarding allocation of certain elements of the
legislation that would require arbitrary decisions.
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Options for Improving the Safety of Superannuation
However, at the end of the exercise, we believe that there would be advantages in terms
of a clearer, more efficient delineation of respective regulatory responsibilities. This, in
turn, should make for easier compliance by superannuation entities.
E.
Benefits
We believe that the above model would offer a number of benefits:
-
Better investor protection from the expanded compliance monitoring role and
stronger financial underpinnings for all For Profit service providers.
-
Greater harmony with the MIA.
-
Less pressure on regulatory resources, through APRA making greater use of
private sector compliance expertise.
-
Lower fees for SAFs.
-
A cost-effective system based on competitive markets for trusteeship,
compliance and custody services.
-
Preservation of the “equal representation” model for Corporate Funds and
Industry Funds.
-
Appropriate incentives for prudent behaviour, by:

ensuring For Profit participants have meaningful capital at risk,
and

enhancing the independent compliance function to address conflict
of interest.
-
Less likelihood of the need for Government bail-outs of failed funds, because
of the strengthened investor protection framework.
*****
Trustee Corporations Association of Australia – January 2002
19