It’s good news for Australians consumers, although long overdue. Legislation has just passed that increase the powers of the Australian financial industry’s two biggest regulators – the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC).
APRA has been granted enhanced powers to deal with underperforming super funds as a legislative response to recommendations made in the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. It can now take civil action against super fund trustees or directors for breaching their obligations to their fund members, including their duty to act in members’ best interests.
The legislation strengthens the obligation for trustees and directors to address fund underperformance as early as possible in order to improve member outcomes. Civil and criminal penalties have been introduced as potential consequences for the trustees and directors of underperforming funds. In addition, underperforming funds may be forced to merge with other super funds or exit the industry.
Previously, APRA could only take action against a super fund trustee or director if they had contravened super legislation or if there was an urgent threat to fund members’ best interests.
The new legislation requires super fund trustees and directors to conduct an annual assessment of member outcomes against a series of APRA-provided benchmarks. In addition, APRA now has enhanced powers to analyse super fund expense data to ensure that members’ funds are being spent in their best interests and according to the sole purpose test.
Note: The sole purpose test is legal requirement that requires super funds to be maintained for the sole purpose of providing retirement benefits to their members (or to their dependants if any of their fund members die before retiring).
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ASIC has also been granted increased powers as a legislative response to recommendations made by the Financial System Inquiry in 2014. ASIC will now be responsible for:
- Ensuring that financial services firms design, market and distribute financial and/or credit products that meet consumer needs.
- Intervening where there is a significant risk to consumers with a financial and/or credit product in order to prevent the consumer suffering financial harm.
The intention of these legislative reforms is to strengthen consumer protection in the financial services industry and to enhance consumer trust in financial products.
The information contained in this article is general in nature.