Treasury has released a consultation paper on Enhancing member protections in the superannuation industry.

The proposals have been developed in response to the losses suffered by members of the Shield Master Trust and First Guardian funds.

While matters concerning Shield and First Guardian are before the Federal Court and part of ongoing investigations by ASIC and liquidators, the alleged practices employed in both cases have raised areas of concern including:

• Click-bait marketing by lead generators, which led to members being connected to financial advisers who pressured them into switching their super;
• Platform Trustees’ broad legal and prudential obligations may not be matched by consistently robust governance practices;
• Superannuation portability arrangements may limit the time for member reflection and be inadequate for informing members of material changes in risks and responsibilities; and
• Existing remediation pathways inconsistently allocate responsibility for losses where multiple entities are involved and do not provide clarity for affected consumers.

While certain proposals are directed specifically at platform operators, a number of the reforms could apply more broadly to all APRA-regulated superannuation funds.

The proposals are in 5 categories:

• Strengthen governance requirements for Platform Trustees including mandatory holding limits for certain investment options and codified due diligence requirements;
• Increase penalties under the SIS Act to better align with the Corporations Act 2001;
• Introduce waiting period for inter-fund superannuation switches;
• Limit fee deductions for switching-related financial advice;
• Requiring Platform Trustees to compensate members for eligible losses.

The Government has also released a consultation paper on proposals to curb lead generation activity, including consideration of the existing anti-hawking regime and conflicted remuneration settings.

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Author: David Jacobson
Principal, Bright Corporate Law
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About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.