The complexity that comes with superannuation funds merging and bringing investment activity inhouse could have led to the potential conflict of interest risk that has led to the corporate regulator to find switching behaviour.
The Australian Securities and Investments Commission (ASIC) recently found failure in super funds identifying conflicts of interests with trustee directors and senior executives regarding personal investment switching based on their knowledge and timing of the revaluation of unlisted assets.
Australian Institute of Superannuation Trustees (AIST) chief executive, Eva Scheerlinck, said as funds became larger to an extent that they were inhousing a lot of their investment activities there was more immediate knowledge of what was happening in markets.
“This is something that perhaps in some funds has been overlooked as a potential risk. It is something that all funds need to be very aware of and make sure that they have strong policies that are well understood by everyone in the business so that they don't contravene their obligations there in relation to insider trading or anything else,” she said.
“I’d rather see the actual report from the Australian Securities and Investments Commission [ASIC] before making any comment about whether anyone has done anything wrong or not.
“The industry has had a lot of regulatory change in recent years coupled with a lot of a lot of growth. You would hope that this would not be something that would have been overlooked as part of that process of insourcing investment functions.
“I was surprised to read about the findings but it will certainly make this an area of immediate focus for months.”
Scheerlinck said AIST was reviewing its governance code for members in the first half of 2022 which had been delayed due to the introduction of the Financial Accountability Regime (FAR) to avoid duplication.
“This will be a good area for us to also include in our review, under the investment governance frameworks of funds in terms of us, and perhaps looking at including that as a reporting requirement to AIST that they're across it and that these resources are being appropriately managed,” she said.
“But it would seem that there's not a lot of duplication with FAR. So, it's a good opportunity for us to now have a look at how the ASX [Australian Securities Exchange] corporate governance framework has changed over the last couple of years.
“This would include what the expectations are at an international level are in terms of good corporate governance within the pension fund sector and, again, lift the governance standard expectations for profit to member super funds.”
Commenting on the issue, Association of Superannuation Funds of Australia (ASFA) chief executive, Dr Martin Fahy, said: “Australian superannuation funds endeavour to continually improve risk management, compliance and governance.
“Conflict of interest polices are an important element of good superannuation fund governance and funds will note ASICs recent pronouncement regarding the need to ensure they have appropriate polices in place.”