ASIC Doubles Down on Civil Penalty Proceedings Against Industry Superannuation Funds
REST and Statewide Superannuation become the first industry superannuation funds to be caught in the crosshairs of ASIC's "why not litigate" approach to enforcement.
The Australian Securities and Investments Commission ("ASIC") has filed civil penalty proceedings in the Federal Court of Australia against two trustees of not-for-profit industry superannuation funds, namely, Retail Employees Superannuation Pty Ltd ("REST") and Statewide Superannuation Pty Ltd ("Statewide"), alleging that they engaged in misleading or deceptive conduct in contravention of the Corporations Act 2001 (Cth) among other statutes.
Following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Australia's Federal Parliament expanded ASIC's reach with respect to superannuation funds. Since then, retail superannuation funds have borne the brunt of ASIC's attention. These proceedings are the first instances in which ASIC has commenced enforcement proceedings against industry superannuation funds (which the Commissioner made limited adverse findings against).
ASIC's case against REST is that, between March 2015 and May 2018, REST made representations that discouraged, delayed or prevented members from transferring their funds to other, better performing superannuation funds. REST purported to impose certain conditions on the transfer to other funds. Such conduct is said to have dissuaded members who would have otherwise left REST from doing so, denying members' lawful rights to superannuation portability and choice of superannuation fund and causing them financial loss.
As against Statewide, ASIC contends that from May 2017 to June 2020, Statewide represented to approximately 12,500 of its members that they had insurance coverage when, in fact, they did not, with approximately A$1.5 million in insurance premia deducted from those members. Statewide is also said to have failed to report the breaches to ASIC within the statutory time frame of 10 business days.
In light of ASIC's disclosure to Federal Parliament in 2020 that it had investigations underway into five industry superannuation funds and 16 retail superannuation funds, we anticipate that these most recent proceedings are likely a harbinger of further enforcement action in the sector in the coming months. In particular, ASIC has signalled its concern to ensure that members' lawful rights to superannuation portability and choice of superannuation fund are safeguarded, and that default insurance offered through superannuation funds represents value for money.
The proceedings indicate that ASIC is now prepared to commence actions against fund trustees seeking penalties, even where a remediation programme is in place or in development (as it appears from media reports that both REST and Statewide have announced members will be remediated). Such enforcement action also highlights potential prudential risks for superannuation trustees as legislative changes that take effect on 1 January 2022 will prevent trustees from paying civil penalties imposed under the Corporations Act out of fund assets.
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