The corporate regulators should not be administering the superannuation laws jointly as it blurs the distinction between the roles, objectives, and charters of the Australian Securities and Investments Commission (ASIC), and the Australian Prudential Regulation Authority (APRA).
In a submission to Treasury on super regulator roles, the Association of Superannuation Funds of Australia (ASFA), said the covenants were originally APRA’s responsibility but now ASIC had responsibility of these provisions.
“In the event of a breach, or potential breach, of a covenant how will it be decided which regulator will take compliance action against the organisation/trustee director?” it said.
“It is difficult to visualise how such a decision would be made on an objective basis, or how the facts would need to differ in order for an appropriate determination in one set of facts is that it would be APRA, while in another it would be ASIC.
“Accordingly, it would appear that ultimately this will end up being an arbitrary decision as to which regulator would take action with respect to the non-compliance.”
ASFA said if both regulators were responsible for administering the law jointly, there might as well be one financial services regulator.
“The ‘twin peaks’ model of regulation should be maintained by ensuring that each legislative provision/obligation is characterised as being predominantly for prudential or consumer protection purposes and accordingly is regulated by APRA or ASIC respectively,” it said.
For example, ASFA said action or disclosure of a consumer issue with a particular provider might cause a run on a particular product which could serve to worsen the position of remaining consumers. In an extreme case, it could result in a loss of consumer confidence.
“Consumer issues usually can be remediated, however, a loss of consumer confidence in a particular market can have a devasting outcome and can pose a considerable systemic prudential risk,” ASFA said.
“As such, it is imperative that ASIC consult with APRA prior to taking any enforcement action against a particular financial services providers, to enable APRA to exercise its responsibilities as the prudential regulator responsible for the stability and soundness of the financial system.
“Given the different objectives of APRA and ASIC there is a question as to whether having two regulators serves to create an unnecessary, and avoidable, conflict of priorities.”