The report said that APRA and ASIC had both been found by the Hayne royal commission to have failed to discourage poor conduct behaviours.
“The hearings [royal commission] have also revealed failures in both the detection and deterrence of poor conduct, by both APRA and ASIC,” the report said.
The commission found that the failure, in part, was caused by the lack of clear distinction between the roles of APRA and ASIC.
“There is a very real and ongoing risk that regulatory breaches ‘fall through the cracks’ as a result of divided responsibilities — with each regulator believing the other should be dealing with a matter, and neither being held accountable for not doing so,” it said.
APRA’s deputy chair Helen Rowell welcomed the reports findings and said the regulator has already begun work on addressing its shortcomings.
“We have significantly stepped up our efforts to improve co-ordination with other regulators, including the Australian Securities and Investments Commission, and are well progressed with a review of APRA’s enforcement strategy. APRA has previously indicated its willingness to take part in a capability review led by appropriately experienced and qualified experts,” she said.
Ms Rowell also welcomed the commission’s calls for greater powers to be handed to the regulator.
“I’m particularly pleased to see the Productivity Commission back our call for Parliament to pass legislation that would give APRA greater powers, including to direct superannuation licensees to take specific actions, such as merging or winding up should that be in the best interests of members,” she said.
The report received support from across the sector with many industry players supporting most of the report.
The Association of Superannuation Funds of Australia’s chief executive Martin Fahy said the report highlighted the strength and relevance of the system.
“The evidence contained in the report highlights that the vast majority of funds are delivering very good value to fund members as well as providing broader favourable economic impacts,” he said.
However, Mr Fahy found fault in the recommendation of a ‘best in show’ for allocating super.
“ASFA is disappointed that the Productivity Commission has doubled down on the so called ‘top 10 best in show’ as a mechanism for allocating default super. This approach risks creating an oligopoly in default superannuation and reducing long-term competition.”
Stockspot’s chief executive Chris Brycki echoed the ASFA’s statement and said the suggestion was the major flaw in the report.
“This recommendation will likely embed existing high costs, create incentives to ‘game’ the system and lead to lobbying to be selected as one of the ten shortlisted funds. We need to reduce costs and improve transparency across all funds, rather than promote existing practices and costs which have resulted from an oligopoly immune from price competition,” said Mr Brycki.
However, BT Financial Group’s general manager of superannuation Melinda Howes said that BT supported the best in show proposal.
“It is pleasing that the PC’s evidence-based recommendations are for the assessment and selection of default superannuation funds based on merit. A merit-based selection process is the best way to get the superannuation system onto a stable and bi-partisan regulatory framework,” she said.
Superannuation Consumer’s Centre head of advocacy Xavier O’Halloran said on Twitter that the default system had let people down and an alternative was needed.
“A real lack of imagination by the critics who claim ‘the best in show’ will hurt competition. What’s your alternative? People left at the mercy of 40,000 investment options? Or the current lazy drip of default money into under performing funds,” his tweet read.
Treasurer Josh Fryendberg welcomed the release of the productivity report but said the full government response would be after the release of the Hayne royal commission report.
“The government will carefully consider the recommendations and will await The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry's Final Report before finalising our response to the Productivity Commission’s report,” he said.
