Conflicts of interest recommendation falls short

Industry Super Australia has criticised the banking Royal Commission final report for falling short of addressing conflicts of interest.

Industry Super Australia said the structure of the industry and other profit-to-member super funds has avoided such conflicts resulting in "scarce evidence of misconduct or conduct falling below community expectations."

In assessing the recommendations they appear to stop short of systemic reforms suggested by some to address conflicts of interest at the heart of most misconduct, ISA said.

However, Commissioner Kenneth Hayne did point out in the final report that conflicts of interest arise in both profit-for-member funds and retail funds.

"In the case of profit-for-member funds, shareholders or nominating organisations of the trustee may have, and may seek to pursue, interests that differ from the interests of members," he wrote.

"The moment a trustee tries to wear two hats, conflicts will arise. The duties the trustee owes to members of the superannuation fund are not the same as the duties it will owe as responsible entity of a managed investment scheme and the duties will be owed to two different classes of members."

ISA said the proposed changes overall should in most cases lead to better outcomes for consumers - but only time will tell whether ongoing conflicts of interest and remuneration settings will result in problems re-emerging.

Association of Superannuation Funds of Australia chief executive Martin Fahy said the proposed reforms amount to a strengthening of conflicts management and regulatory frameworks that seek to ensure members' best interests are at the heart of all trustee determinations.

"Reforming the system in this manner will build consumer trust and confidence in a system that is already delivering some exceptional outcomes for Australians," he said.

"The Commissioner has acknowledged that the regulatory architecture underpinning our system is strong and that the best interests covenant, and sole purpose test, set high standards for trustees operating superannuation funds."

Fahy said it will be important to work through each of the recommendations carefully to consider unintended consequences that may arise in implementation.

The Financial Services Council chief executive Sally Loane said the council endorses the recommendations that a person should be defaulted once into a superannuation account and the retention of the twin peaks regulatory model.

"With the release of the final report and the Government's response, we can now move even faster to repair the sector's damaged reputation and ensure that consumers are able to trust each and every one of the people, products and services in our sector," she said.

Read more: Industry Super AustraliaISARoyal CommissionASFAFinancial Services CouncilKenneth HayneMartin FahySally Loane
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