Comment: APRA hedges on Hayne critique

The Australian Prudential Regulation Authority has refused to bear responsibility for taking no court action against miscreant superannuation funds that skimmed fees from unsuspecting members.

In a submission to the Hayne inquiry published yesterday, APRA defends its regulatory record despite evidence given to the royal commission in August hearings that it failed to take action against misleading conduct of bank-owned superannuation providers.

The royal commission heard that APRA took no action against CBA's Colonial arm after it misled the regulator into believing that breaches of superannuation laws had been corrected in 2014.

In that year Colonial was found to have channelled customers into high-fee superannuation products when it was required by law to move the members into low-fee MySuper accounts.

Thousands of Colonial retirement savers were affected by the sharp practice, which led the company to reassure APRA in July 2014 that it had controls in place to prevent it happening again.

However, evidence presented to the royal commission shows that the illegal practices continued at Colonial until August 2016.

At least 16,000 breaches were discovered by APRA but it took no legal action against Colonial.

In its submission to the royal commission's interim report, APRA avoided making itself accountable for its limp response to the fee rorting practice and Colonial's misleading assurances.

Instead, the regulator uses a neutral tone and passive language to describe its role as a superannuation regulator and downplay its actions.

In the submission the regulator doesn't explain why non-compliant management of members funds by Colonial was not worthy of litigation.

"APRA believes its response to misconduct and misconduct risk has been broadly appropriate given its core prudential mandate and risk-focused approach," the regulator argues in its submission.

"That is, APRA has largely focused its response to matters that relate to prudential risks and on issues that may have a material impact on the regulated entity concerned.

"APRA's response to misconduct has focused on strengthening the governance and practices of regulated entities, and taking action to protect the interests of beneficiaries."

In the Colonial matter, APRA took no legal action against the superannuation provider even though the unacceptable practice persisted for two years.

Inevitably, this raises a serious question as to the validity of APRA's claim that it takes "action to protect the interests of beneficiaries".

Commissioner Hayne found that when it came to enforcement of the law involving matters of non-compliance or misconduct, APRA never went to court.

"When misconduct was revealed, it either went unpunished or the consequences did not meet the seriousness of what had been done," the royal commissioner observes in his interim report.

"The conduct regulator, ASIC, rarely went to court to seek public denunciation of and punishment for misconduct.

"The prudential regulator, APRA, never went to court.

"Much more often than not, when misconduct was revealed, little happened beyond apology from the entity…"  

There are other matters in relation to the bungled handling of the Colonial matter that APRA is yet to account for.

Under questioning from counsel assisting on 17 August, APRA's deputy chair Helen Rowell confirmed that the regulator had approved the controversial wording of a letter Colonial wanted to send to superannuation customers.

The letter sought consent from fund members to stay in a product that charged higher fees but made no reference to the low fee MySuper account.

While Rowell acknowledged that it would have been "more desirable" for the letter to have included "more complete" information, she could not explain why APRA approved it to be sent to 60,000 Colonial customers.

However, she told the royal commission that the Colonial matters were "under discussion" within APRA.

Since Rowell gave her evidence in August, the regulator has not issued a public statement explaining the circumstances through which the misleading communication was formally approved.

Presumably, those internal discussions are continuing and APRA is not yet ready to concede it made a mistake.