'Long overdue' update to banking royal commission
The final raft of legislative reform resulting from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry will be introduced to parliament this week and consultation on the review of the Your Future, Your Super regime has commenced, minister for financial services Stephen Jones confirmed in an address to the Conference of Major Super Funds this morning.
Appearing via video, Jones said he will introduce the bill to introduce the Compensation Scheme of Last Resort and the Financial Executive Accountability Regime.
"This is long overdue and should have been implemented by the former government... We want to be finishing up this year saying, 'All of the legislation to implement the Hayne recommendations has been done'. We're on track to do that," Jones said.
The consultation process for the government's review of the Your Future, Your Super regime also commenced today.
"There was a lot of things within that package of legislation that Labor supported, but there was also a lot in there that was more driven by ideology than good sense. A bunch of that we got knocked out as the laws passed their way through parliament... but when you have any major reform such as this, it just makes good sense that you would conduct a review after a period of implementation," Jones said.
He added that it is particularly focused on the benchmarking process, saying it's sensible to look at the operation of the benchmarks.
"I want to make it clear that we support performance measurement. The Labor government is unequivocally on the side of high-performing funds and holding trustees' feet to the fire to ensure that they deliver on their performance promises," he said.
"However, we want to make sure that when we're doing that we aren't introducing mechanisms that have unintended consequences."
Questions included in the consultation paper include whether the use of actual return using strategic asset allocation affects risk-taking behaviour by super funds; does the current set of indices reduce choice for members; and what are the longer-term impacts on market dynamics.
The application of the stapling process is also being considered, including specific feedback as to how it's operating at the workplace level and in conjunction with group insurance, Jones said.
"We are not going to be reopening the stapling issue. For too long we've had multiple accounts eroding members' fees through multiple sets of fees and ensuring that members weren't getting the full value of their retirement savings, but we understood that there were going to be some consequences to the way the former government set stapling up and we want to have a look at it," he said.
Jones said Treasury is also seeking feedback on the ATO's YourSuper comparison tool, including its implementation and operation, and whether it should be extended.
Turning to the topic of merger activity having accelerated because of Your Future, Your Super, Jones said for the most part this has been a good thing, particularly those driven by underperformance.
"If anything, I'd like to see some of the friction removed from the process so that funds that have decided it's in the best interests of their members to merge, we can ensure that those processes occur swiftly and with less friction than is currently in the process," he said.
He concluded by saying that he has included in the consultation paper a question around the implications for market structure, focused on accelerated and excessive mergers and consolidation, but added that he isn't concerned that increased consolidation may create funds that are "too big to fail."
"We're a long way from replicating in the superannuation industry the sort of concentration we see in the banking sector, a long way. As far as funds being too big to fail goes, I think if we get to that point then we've really failed at a heap of other areas in the government's and the prudential stages of fund management," Jones said.
"I'm not concerned about that."
The consultation paper also touches on the consequences of failing the performance test, asking whether there is evidence to indicate that the notification and website publication requirements have been effective at encouraging members to consider, and switch to, alternative products. It's also asking whether improvements are needed on this front, and whether the consequences have been effective in forcing trustees to take action and improve performance.
The paper also discusses members' best financial interests and to what extent the duty has required trustees to change their processes. It's also asking whether there is any particular expenditure that trustees are concerned about being able to demonstrate compliance with the duty.
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