'Behind closed doors?': super watchdog grilled over enforcement record
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'Behind closed doors?': super watchdog grilled over enforcement record

One of Australia’s key superannuation watchdogs has admitted it has so far failed to take any real action over the snowballing “fees for no service” scandal, and been forced to defend its reluctance to haul super sector wrong-doers before the courts.

Appearing before the Hayne royal commission on Friday, the Australian Prudential Regulation Authority’s deputy chair, Helen Rowell, also struggled to explain why the regulator failed to follow through on threats to act against Commonwealth Bank-owned Colonial over its failure to channel members into low-fee MySuper products – conduct that involved 15,000 contraventions of superannuation law.

Deputy APRA chair Helen Rowell at the Royal Commission.

Deputy APRA chair Helen Rowell at the Royal Commission.

Photo: Supplied

And her description of a My-Super related Colonial call centre script – which Colonial has already admitted was misleading – as “not desirable” was met with incredulity by counsel assisting Michael Hodge QC, as part of a testy exchange late in her evidence.

“Surely it’s unacceptable from a regulator’s perspective?” Mr Hodge asked Ms Rowell, who  replied that, “it would be preferable if there was complete disclosure to the members”.

In the final day of superannuation-related hearings at the Hayne royal commission on Friday, Mr Hodge repeatedly grilled Ms Rowell over whether APRA had placed priority on the stability of super funds over the interests of super fund members - as well as the need for transparency and public action against wrong-doers to act as a deterrent.

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She rejected criticism from the Productivity Commission, cited by Mr Hodge, that APRA was a "behind closed doors" regulator, despite admitting that APRA was reluctant to litigate breaches before the courts.

She later argued that APRA avoided court action due to costs and time delays, citing APRA’s “previous experience” of court processes. But she was forced to agree with Mr Hodge’s suggestion that, on superannuation matters, “APRA hasn’t had any experience with dealing with courts in the last 10 years”.

Fees for no service

She was also questioned over APRA's response to the "fees for no service" scandal - a major ongoing theme of the royal commission - and on the super industry's response to the 2014 MySuper reforms, which required default fund members to be transferred to low-fee, no-frills products.

Ms Rowell was questioned on whether members paying "fees for no service" would potentially breach the so-called "sole purpose test" central to the super system - that funds are run for the benefit of members - after she admitted APRA had never pursued civil penalties over a breach of this requirement.

She said that APRA was "engaging" with and "following" the work of fellow regulator the Australian Securities and Investments Commission on the "fees for no service" issue, adding that there had been discussions with individual entities as APRA sought to "get a complete understanding of the issues".

"I don't believe we have made any conclusions at this stage as to what further action, if any, we might wish to take," she said.

'Misleading?'

On the Colonial matter, Ms Rowell was questioned on why APRA had approved a MySuper-related letter to members which - Colonial’s executive general manager Linda Elkins had also already admitted this week - was also misleading.

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“Have you inquired as to why APRA would have approved these call centre script and letter if they were misleading?” Mr Hodge asked Ms Rowell, who said she had not had the chance to, given the issue arose “in the last few days”.

This sparked a question from Commissioner Kenneth Hayne on whether “those discussions could not be brought to an end before you came into the witness box to give evidence? Is that the position?”

“That’s correct,” she said.

Mr Hodge probed Ms Rowell on why APRA did not take enforcement action over Colonial's 15,000 MySuper contraventions, despite threatening to do so, with the commission shown evidence that Colonial continued to breach the law into August 2016, despite assuring APRA in July 2014 that it had controls in place to prevent this.

“Was there an agreement by APRA that it wouldn’t take enforcement action in respect of thee contraventions?” Mr Hodge asked.

“I’m not sure that I would say that was necessarily an explicit agreement," she said. "I think what APRA agreed [to] was an appropriate way to deal with the issue.”

'Engaged and engaged'

Under Mr Hodge's questioning, Ms Rowell repeatedly explained how APRA “engaged” with super entities over any concerns it may have, including if it had doubts whether fund directors met the required test of being “fit and proper” to serve.

The royal commission was shown evidence that APRA had taken court action just once to disqualify a superannuation director for not being a “fit and proper person” since 2008 – and that matter related to the notorious Trio Capital fraud in which members lost $180 million.

This stood in contrast to the pre-2008 situation, when APRA was able to disqualify super fund trustee directors without applying to the courts. In a five-year period to 2008, it removed 133 people – though Ms Rowell said many of these related to a 2004 law change.

Mr Hodge questioned Ms Rowell on what APRA would do if there was no action on an unfit person after the regulator had “engaged and engaged”. “Ultimately, if we are talking about a ‘fit and proper’, then we would need to apply to the court,” Ms Rowell said.

Ruth Williams investigates corporate governance, crime, financial regulation and whistleblowers.

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