The financial services Royal Commission has suggested APRA's proposed new powers could be used to address stalled super fund mergers.
The Parliament is currently waiting to pass a number of changes to the Superannuation Industry (Supervision) Act (SIS Act), including giving APRA a power to issue directions to RSE licensees.
"It may be that, in particular circumstances, addressing a stalled merger would be an appropriate use of such a power," Commissioner Kenneth Hayne said in his final report.
The SIS Act asks that trustees of any responsible entity that offers a MySuper product must conduct an annual scale assessment to decide if its members would benefit from merging their fund with a bigger one with more assets and members.
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The Royal Commission's public hearings examined two case studies about super fund merger proposals. In both cases, the merger discussions were derailed by who would get a seat on the table at the new merged fund's board.
Energy Super and Equip Super's boards agreed a merger was in best interest of their members. A KPMG report even put a number on this, saying the members of the combined fund could save more than $20 million. However, talks fell over about who would be appointed in board seats.
Similarly, Catholic Super and the Australian Catholic Superannuation and Retirement Fund's $18 billion merger failed because the funds couldn't agree on who would be appointed as the first chair of the merged board.
"This conduct of Energy Super and CSF suggests that the trustees may have lost sight of their fundamental obligation to act in the best interests of members. In doing so, their conduct fell below community standards and expectations," Hayne noted in the final report's case studies.
The Commissioner stopped short of commenting on the board composition at industry funds but made it clear that nominated board positions could interfere with the trustee's duties.
"...it is possible that in the circumstances of a particular proposed merger, a shareholder or nominating organisation could interfere despite the best efforts of the trustee (such as by refusing some consent required under the trustee's constitution)," the report said.
"It is to be hoped that such extreme situations will be rare. Should such a situation occur, it would be for the trustee to take the necessary steps to ensure that its shareholders did not cause it, the trustee, to be in breach of its obligations."
Hayne said the determining question in mergers must be what is in the best interests of members.
"The determining question cannot be whether one or more of those who are directors before the merger will have a place on the new board," he said.
"The moment the argument is framed in terms of 'control' [over board seats] it must be apparent that the interests of the controller are being considered above the interests of the members. And that is not consistent with the duties of the directors of the funds that are contemplating a merger. It is to fail to give priority to the interests of members over all other interests," he said.
In separate recommendations, Hayne asked for the banking executives accountability regime (BEAR) to be extended to super funds and insurance.
Under it, superfunds would have to nominate an accountable person to the regulators.
"It would be prudent to enable both ASIC and APRA to seek disqualification of accountable persons if they are satisfied that an accountable person has breached his or her accountability obligations, although I would expect that the power would ordinarily be exercised by APRA," he said.