Counsel assisting the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has been very clear – not all breaches of the sole purpose contained within the Superannuation Industry (Supervision) Act constitute conduct falling below community standards and expectations.
So far as the lawyers assisting the Royal Commission have been concerned, the expenditure of large sums of money on political advertising and corporate hospitality, if they are breaches at all, are not of the same magnitude as IOOF using a fund’s general reserve to replenish member accounts or Suncorp’s use of tax surpluses.
This differential interpretation of breaches of the SIS Act give weight to suggestions by Deloitte that the sole purpose test, as currently constituted, has passed its ‘used-by’ date and is in serious need of revision.
Because the lawyers assisting the Royal Commission, while arguably not intimately acquainted with the nuances of superannuation industry law and practice, are hardly alone in finding it difficult to make a definitive call about what represents an egregious breach of the sole purpose test and what does not. For years, the Australian Prudential Regulation Authority (APRA) has struggled to provide a convincing explanation of why expenditure on the “compare the pair” campaign was not a breach.
In the end, it will be up to the Commissioner, Kenneth Hayne, to determine whether his counsel assisting have been consistent in their assessments of why one apparent breach of the sole purpose test is a policy question while another represents an action falling below community standards and expectations, but it is clearly time for the law-makers to revisit the legislation.
The Superannuation Industry (Supervision) Act has been in place for 24 years and, while there have been some nip and tuck amendments over the years, there are many elements of the legislation which have failed to keep pace with the realities of what has become a $3 trillion industry which, in turn, has spawned some of Australia’s largest financial institutions.
While the so-called sole purpose test within the SIS Act has the laudable objective of ensuring that superannuation funds pursue activities solely for providing benefits to members, it is arguable that it now also acts as a significant constraint on the ability of superannuation funds to evolve and thrive to better meet the interests of members.
It is the sole purpose test, for example, that prevents superannuation funds from offering members a wider range of services from the provision of non-superannuation investment products to offerings such as health insurance.
While the interests of superannuation fund members must remain paramount the sole purpose test is amongst those elements of the SIS Act in need of review and possible revision.