The prudential regulator's powers have been bolstered thanks to new laws that will enable it to take tougher action on trustees and underperforming funds.
The Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No 1) Bill 2019, which passed on April 4, strengthens APRA's power following criticisms it has not effectively regulated the superannuation industry as highlighted by the financial services Royal Commission.
APRA's new powers allow it to direct and take action on RSEs that contravene its prudential obligations, and impose civil penalties against trustees and their directors for breaching obligations to members, including the duty to act in the best interests of members.
For example, APRA can issue a direction on RSEs if certain financial risks affect the interests of members; if they fail to meet liabilities; or face material financial deterioration. It can also remove an auditor or an actuary and address certain financial risks.
Deputy chair Helen Rowell said APRA could only previously direct a trustee after a contravention of the law had taken place, or where APRA believed there was an urgent, material threat to members' interests.
"The new directions power gives APRA the ability to intervene at an early stage before members suffer significant harm."
This may mean in some instances, underperforming funds will be forced to merge or exit the industry, she warned.
Assistant Treasurer Stuart Robert said the legislation will help safeguard the retirement savings of millions of Australians and ensure that APRA can take effective action, including addressing underperformance and compliance with the best interests duty.
He added the new law was another example of the Government taking action on Commissioner Kenneth Hayne's final recommendations. This includes Recommendation 3.6, which extends civil penalties to superannuation fund trustees.
Penalties for contravening covenants
Trustees and directors of super funds could face civil and criminal penalties if they fail their responsibilities to act in the interests of members, or use their position to further their own interests, the explanatory memorandum shows.
"For serious contraventions, amendments made by the Senate to this Schedule that were tabled by the Opposition allow for a Court to fine the trustee or director up to 2,400 penalty units," it read.
A serious breach of directors' duties (such as intentional or fraudulent contraventions) may constitute a criminal offence punishable by up to five years imprisonment.
Rowell commented: "The new civil penalties that may be imposed on trustees and directors for breaches of their section 52 and 52A duties will attract both civil and criminal consequences. This, combined with the broader directions power, gives APRA much greater leverage to influence trustee behaviour from the outset and to push trustees to meet their obligations to members under the law."
Annual outcomes assessment
Under the new law, super trustees will have to annually assess and compare the appropriateness of product offerings for MySuper and choice products - including how each product promotes the financial interests of members.
APRA will have the power to refuse or cancel a MySuper authorisation.
The Bill also empowers APRA to collect data on expenses relating to the management and operation of a fund on a look-through basis. This will enable APRA to better understand whether trustees are spending members' money in line with their obligations.
Rowell said the reforms supported APRA's increased focus on the outcomes trustees across all superannuation sectors were delivering for their members.
Portfolio holdings disclosure
On a semi-annual basis, super funds will be required to disclose investments and drill down to the underlying asset and derivatives held directly or through associated entities, as well as initial investments into non-associated entities.
RSE licensees will be obliged to make publicly available the details of portfolio holdings twice annually after each reporting day - June 30 and December 31 each year by publishing this information on the fund's website within 90 days.