APRA tightens rules on Colonial First State and Suncorp

APRA has imposed new licence conditions on Colonial First State Investments and Suncorp, following Hayne recommendations.

APRA’s latest rules follow on from recommendations made by royal commissioner Kenneth Hayne.

Commonwealth Bank and Suncorp’s wealth arms will be forced to put in writing how any changes they make to funds are in members’ best interests, under new rules put in place by the financial regulator.

The targeted measures against some of the nation’s biggest wealth managers have been introduced following recommendations made by the Hayne royal commission and a separate investigation by the Australian Prudential Regulation Authority.

The rules will require CBA’s Colonial First State Investments and Suncorp’s wealth arm to record how internal decision-making will affect members.

Superannuation fund administrators have a statutory obligation to act in members’ best interests, but the new rules will force the two wealth managers to be explicit in how this is being met. The paper trail could make it easier for regulators or even fund members to launch legal action if they felt a best interests test was not being met.

The 2018 Hayne royal commission found Colonial was not moving members to low-cost MySuper accounts by the legal deadline, and imposing grandfathered fee arrangements.

APRA said while Colonial stopped short of breaching the Superannuation Industry (Supervision) Act, its investigation raised concerns about the adequacy of Colonial’s internal processes for demonstrating how members’ best interests were considered and prioritised.

As a result, APRA will impose a licence condition requiring ­Colonial “to record how it considers members’ best interests and members’ priority covenants when making decisions that ­materially affect their interests,” the regulator said.

A Colonial spokeswoman said the fund “takes its obligation to act in the best interests of its superannuation fund members seriously and agrees with the purpose of the licence conditions”.

“The additional conditions require Colonial to document the way in which it has considered its obligations under the members’ best interests and members’ priority covenants, and maintain a record of all relevant documents,” she said.

In May, CBA indicated that private equity giant KKR would purchase a 55 per cent stake in Colonial First State, as the ­nation’s largest bank looks to lower its exposure within the superannuation sector.

The major retail fund was one of the 12 cases referred to commissioner Kenneth Hayne for grandfathered fee arrangements.

New trailing commissions for advisers were banned as part of Future of Financial Advice reforms brought in by Labor in 2013, but under a “grandfathering” provision advisers were allowed to continue receiving the payments for advice they had already given.

The grandfathered payments were expected to roll off as advisers updated investment options, but it emerged in the Hayne royal commission that customers were trapped in unsuitable products and advisers often traded portfolios of grandfathered customers.

Figures from the Hayne royal commission showed that more than $400m in grandfathered trailing commissions was being imposed on the retirement savings of hundreds of thousands of members in the 11 largest bank-run super funds every year, with many unaware of the charges.

In another matter referred by the Hayne royal commission, APRA noted Suncorp had been investigated for also delaying the transfer of members to low-fee MySuper accounts, but con­cluded there was no breach of superannuation laws. However, APRA was concerned that internal processes were not considering the interests of members.

“This measure will improve (Suncorp’s) decision-making processes and also ensure that APRA is better able to assess whether members’ interests are being sufficiently considered and prioritised by (Suncorp) in the future,” APRA said on Thursday.

The regulator is forcing Suncorp to obtain independent verification of its analysis of the MySuper delay, to determine remediation for members who had balances affected by the transfer.

It will also be required to ­notify affected members of the prospective remediation plan and to issue a public statement.

“We will fully co-operate with APRA regarding the two additional conditions and will use this as a further opportunity to document our processes for getting optimal member outcomes through the independent trustee board,” a Suncorp spokesman said.