Cbus scandal revives ghosts of banking royal commission

Echoes of the fee-for-no-service disgrace that got the financial services Royal Commission fired up seven years ago are distinctly audible from the emerging scandal engulfing the industry super fund Cbus.

Having already come under pressure to cut ties with the Construction, Forestry and Maritime Employees Union (CFMEU), the $94 billion Cbus now finds itself in hot water for allegedly failing to process disability and death benefits for thousands of its customers.

The mistake is politically explosive and a hammer blow to Cbus’ reputation, with one of the gamekeepers of governance caught with its pants down.

Cbus Super’s Kristian Fok appears via video link during a public hearing of the Economics References Committee.Credit: AAP

While the issue could be notched up to Cbus’ administrative systems groaning under the weight of its voluminous funds under management, it’s hard to look past the sting in the tail the Australian Securities and Investments Commission (ASIC) has included in its legal action – an allegation that Cbus misled and deceived the regulator in the lodgement of the industry funds breach report.

In other words, Cbus has been accused of the trifecta of tardiness, a failure to act honestly in handling members’ claims, and being lax about making sure its breach report wasn’t misleading.

Readers will remember that the financial services Royal Commission uncovered a plethora of misdeeds by the banks’ wealth management operations and other players including the AMP. They were systemic, had been going on for years, and had been overlooked by (or unknown to) the stewards of these large companies.

It was a governance catastrophe for the financial services industry, and with ASIC turning the screws on Cbus there’s every chance that this one action could snowball into more stringent scrutiny of industry super funds.

The root cause of Cbus’ alleged failure (for which it has apologised) appears to be indigestion from its rapid growth. With $94 billion under management, its internal systems, and the functions it outsourced, were unable to handle the pressure. But Cbus can hardly use this as an excuse because ASIC’s allegations raise significant questions over the competence of its governance.

And you would now have to consider whether a forensic investigation of some of Cbus’ industry super peers might uncover similar problems.

Cbus chairman Wayne Swan.Credit: Michael Quelch

It is quite the glass house moment for Cbus and its peers that together manage $4 trillion in funds, and have recently become the unofficial police of governance for the listed Australian companies in which they invest.

Their heft has given them a unique seat at the table in many companies, allowing them to have a say on their environmental, social and governance (ESG) performance. But will that unofficial mandate now become weakened because of Cbus’ governance failure?

It also puts the Labor Party under pressure to respond accordingly, given it is now in the particularly awkward position of watching the regulator attack the industry fund chaired by party president and former federal treasurer Wayne Swan.

The Albanese government’s initially muted approach to the escalating Cbus drama sits in stark contrast to its shrill screams around the behaviour of supermarkets, which it has accused of breaking a social contract with customers by profiteering and price gouging.

Yet allegations of Cbus not processing more than 10,000 disability and death benefit claims in a timely manner, leaving more than 6500 members out of pocket, doesn’t seem to merit the same level of attention.

The best lines from Labor so far have come from the current federal treasurer Jim Chalmers, who said this week he had no problems with regulators doing their job.

“That (the tabling of charges) shows that the regulators are doing their job, and they do that across the economy, and that’s a good thing,” he said.

“I’m a strong supporter of our regulators, and when they find issues that concern them, they should test them (at court), which is what they’re doing now.”

And even before ASIC announced its legal action against Cbus, Australia’s prudential regulator, the Australian Prudential Regulation Authority (APRA), had begun a separate investigation into the fund’s governance over concerns about whether its three CFMEU-linked directors are fit to hold those roles, following reports of criminality and corruption in the union’s construction division.

On Thursday, Liberal senator and Senate economics committee chairman Andrew Bragg turned up the heat by suggesting Swan may need to front the inquiry into retirement outcomes to explain the extent of his involvement at the fund.

Swan fronting up to a hearing would be quite a feat, given that Cbus was initially reluctant to attend the inquiry at all.

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