ASIC calls out super trustees over 'weak' anti-scam practices

The Australian Securities and Investments Commission (ASIC) has written to superannuation trustees urging them to strengthen anti-scam practices, or risk exposing their members to harm.

The open letter, signed by ASIC commissioner Simone Constant, outlined ASIC's guidance for super trustees in preventing, detecting and responding to scams and fraud activity.

In the letter, Constant said disrupting investment scams is a priority for ASIC and the regulator has observed "weak trustee practices" relating to scams and fraud.

"Over the coming decade, an increasing number of superannuation fund members will reach preservation age. While all members are vulnerable to scams and fraud, members who have reached preservation age face fewer frictions in accessing their funds and tend to have higher account balances. These factors can make them attractive targets," Constant said.

ASIC's review into trustees handling of scam and fraud practices found trustees were overly reliant on anti-fraud measures and had limited focus on the specific risks and harms associated with scams.

"For example, they focused on confirming that the person requesting the transfer was the member rather than looking for flags to indicate that the member may have been tricked," Constant said.

In addition, ASIC said trustees did not have sufficient oversight of their external administrators' anti-scam and anti-fraud practices.

"In our engagement with trustees, they frequently referred in general terms to their administrators' systems and processes, but sometimes lacked knowledge about key details. One of the trustees we engaged with was unable to identify whether its administrator undertook basic interventions, such as engaging with members over scams," the letter said.

ASIC's review of 15 superannuation trustees also revealed they lacked many of the foundational anti-scam practices that ASIC has identified in relation to banks. ASIC said none of the trustees had a scams strategy, dedicated reporting on scams, or reviewed their scam prevention, detection and response capabilities.

"Trustees generally reported that they had not seen many, if any, instances of scams impacting their members. Several trustees told us that this was the reason for their limited focus on scams," the letter said.

"Trustees must ensure they capture, and record scam attempts accurately, so they have the necessary data to properly assess the real risk of scams to members. This observation is similarly applicable to fraud.

"As banks, telecommunications providers and other financial service businesses increase their anti-scam and anti-fraud capabilities, superannuation trustees must do the same or risk becoming a soft target."

Constant said trustees need to conduct preliminary assessments of their anti-scam and anti-fraud measures, consider if they should allocate a scam (and fraud) management key function, and leverage industry bodies and bilateral relationships to share information and promote improvements across the industry.

Industry pushes back

In response to the letter, ASFA pushed back against ASIC saying the regulator ignored the significant steps the sector has taken to effectively protect super savings.

"ASIC's letter to superannuation trustees, released first to the media, seemingly ignores the super sector's proactive measures to tackle these rare super scams, measures which ASIC is aware of," ASFA chief executive Mary Delahunty said.

"In the media statements this morning, ASIC appears to have come to the confusing conclusion that no evidence of scams existing or increasing means that the scammers are winning - instead of the other more reasonable conclusion, that the work of super funds and their services providers is effective. We hope that ASIC can recommit to constructively working with ASFA members to tackle the small, but important risk of scams in super."

Delahunty said that of the 11,000 instances of scams complaints received by the Australian Financial Complaints Authority last year, fewer than 20 were super-related transactions.

"Superannuation funds are actually some of the safest places in the country to have your money," Delahunty said.

"Unlike banks or other financial institutions, our superannuation funds are unique because an individual's money is held in a trust and is preserved and protected until that individual reaches retirement age or meets a condition of release, like release on compassionate grounds."

Delahunty said despite ASIC finding that none of the 15 trustees reviewed had foundational anti-scam measures in place, it should be noted that the only way members can move money out of the super system is through the banking system, which already has very rich data and systems in place to help identify scams and fraud.

"Australia's superannuation account holders shouldn't be alarmed: the sector is taking action now to future proof against any potential risks, even though scams are incredibly rare in the superannuation sector," Delahunty said.

"The superannuation sector isn't sitting back and taking our very low rates of scams and financial crime for granted, we note the specific concerns ASIC has identified in their letter today and we commit, through ASFA's Financial Crime Protection Initiative, to working on these."