Comments made by the incoming chair of Australian Securities and Investment Commission (ASIC) indicating financial institutions have forgotten whose money they are investing should prompt Federal Government to rethink its super fund governance reforms, argues the Industry Super Australia (ISA).
This week, Financial Services Minister Kelly O’Dwyer recommended that James Shipton, a former Goldman Sachs banker, commence a five-year term as ASIC Chair on 1 February 2018. He will take over from Greg Medcraft whose term ends on 12 November. Peter Kell, the current Deputy Cahir, will serve as Acting Chair in the interim period.
“The challenges ahead for Australia’s financial system, and its regulators, are significant,” Shipton told a press conference. “I intend to ensure that ASIC will be a strong, proactive, efficient, innovative and strategic regulator that will utilise its many regulatory tools, including gatekeeping, supervising and enforcement.
“In order to do this, I will draw upon my years of experience in overseas markets – as a lawyer, as a market participant, as a regulator and now as an academic specialising in financial systems and regulation – to continue to bring best international practice to ASIC.
“Financial markets are, ultimately, built on trust. Trust in the integrity of the market and trust in market participants. I see ASIC as a guardian of that trust and as an institution that is there to constantly remind market participants that finance only exists to serve the broader community and the economy.”
Shipton subsequently told News Corp that financial institutions need to be reminded they are “just stewards and guardians of other people’s money”. This prompted ISA to urge the Government to abandon proposed super fund governance changes.
“Public trust in the finance sector is at an all-time low – and this extends to superannuation where bank-owned funds appear to be using compulsory retirement savings to drive parent company profits at the expense of member returns,” said ISA public affairs director Matt Linden.
“It is extraordinary the Government’s solution to the disconnect between boards and investors identified by Mr Shipton is to abolish the representative trustee model from the superannuation law and mandate quotas of ‘independent’ directors – typically drawn from the ranks of the finance industry.
“The reasons for the superior culture and returns of not-for-profit funds lies in the representative trustee model. In the not-for-profit governance model, the trustees have a direct link to those who contribute much of super money – employers – and those who own it – employees. This direct link to workers and employers is absent in retail funds and much of the financial services industry.
“Rather than abolish the representative trustee model from the law, the government should withdraw its flawed governance bill. If anything it should introduce laws that require all superannuation funds to appoint representative trustees who know exactly whose money the institution is stewarding.”
Linden noted that Minister O’Dwyer had vowed, in November 2016, to take super funds to “the same standard as other financial services organisations like banks and life insurance companies” (Super industry laughs at O’Dwyer, Australian Financial Review, 23 Nov 2016.)
He added, ““Not-for-profit funds which have avoided scandal, on average outperformed bank-owned retail funds for two decades, and invested in Australian nation-building infrastructure projects, are calling on the parliament to reject the Trustee Governance Bill, re-introduced in September.”