The Australian Prudential Regulatory Authority (APRA) believes that it needs more powers to intervene in certain sectors when necessary and has identified the retirement fund industry as one that needs more scrutiny.
With the Royal Commission inquiry into financial misconduct earlier this year revealing a raft of malpractice in several sectors, public trust in Australian finance has dipped significantly. Retirement funding is a particularly pressing issue in that it is much harder for individuals to opt out of this or choose alternative providers in the same way. Given retirement funds’ importance to citizens in later life, APRA is hoping to sort this out sooner rather than later in case it turns into a national funding issue.
While the inquiry revealed many issues that were not directly related to these retirement funds, such as misselling fees, charging the wrong customers certain fees and not providing a service that customers paid for, regulators believe that this is indicative of a widespread culture that needs addressing.
During the inquiry, APRA and the Australian Securities and Investments Commission (ASIC) refuted assertions that they were too soft and too slow to act when presented with obvious issues and said that if they had greater regulatory powers, then they could have prevented some of these problems from festering and getting worse.
In its submission at the time, APRA that it ‘does not accept the premise that is has not generally acted promptly on misconduct or potential misconduct.’
At the same time, it added: ‘However, there are steps that could be taken to improve the ability of both APRA and ASIC to take prompt and effective action in cases of misconduct.’
APRA also admitted that it could do better when faced with similar circumstances but said that the impression that greater regulatory powers would give could help ‘strengthen APRA’s powers in some areas (including to regulate and enforce the best interests of members covenant and sole purpose test).’
The regulator said that it took particular issue with companies that followed a route of vertical integration, as they ended up selling products that other arms of the same companies would end up buying, creating potential conflicts of interest.
In response to the revelations emerging in the inquiry, ASIC said that it needed to be able to manage tricky waters such as these with much more ease and invest fewer resources into fixing them.
In a statement, it said that ‘ASIC believes that legislative intervention is warranted to address the inherent conflict issues’ when companies can carry out both buying and selling duties while representing shareholders and consumers at the same time. This often led to incorrect actions and the wrong products sold to tick boxes for shareholders.
ASIC said that one option would be to restrict how these companies could operate, noting that ‘consideration should be given to prohibiting’ organizations working in this manner. Unless set rules are in place to ensure that companies could not carry out these policies because of regulatory barriers, it will be difficult to prevent a repeat of the behavior that led to the inquiry in the first place.
Citing ‘conflicted structures and the inability of (superannuation entities)’ to deal with these problems themselves, ASIC said that greater regulatory powers are necessary.