The Financial Accountability Regime can’t come soon enough for trouble-prone super sector

The FAR is a much-needed reform that comes into effect in March next year for superannuation trustees and insurance companies.

The Financial Accountability Regime – aimed at boosting governance cultures and ensuring executive accountability when things go wrong – can’t come into force soon enough for the nation’s trouble-prone industry and retail superannuation funds.

The FAR, as it is referred to in the financial services industry, is a much-needed reform that comes into effect in March next year for superannuation trustees and insurance companies. Given a spate of issues and scandals at large super funds that have come to light of late including at AustralianSuper, Cbus and HESTA, it’s clear a hard-hitting accountability regime is long overdue.

That latest black mark against the sector came on Tuesday amid revelations HESTA will compensate more than 100,000 members caught out by its tardy revaluation of unlisted assets during March 2020, when markets were battered by fears linked to Covid-19’s spread.

Last week, the corporate regulator kicked off legal action against Cbus over the alleged mishandling of $20m in insurance money owed to grieving families and people with disabilities. The case brought by the Australian Securities and Investments Commission uncovered staggering claims that by late 2022, more than 6,000 Cbus members and claimants had their payments delayed by more than 12 months.

Another terrible outcome for super fund members this year related to industry fund heavyweight AustralianSuper and its exposure to US software firm Pluralsight. AustralianSuper lent funds and also invested in the company, eventually taking a more than $1bn hit via a write down, as a restructure handed control of embattled Pluralsight to other private lenders.

What’s clear is that these issues require accountability. There need to be consequences imposed within the funds’ ranks for those responsible for the loss of members’ money or poor practices that also lead to governance and compliance issues.

If a public company was to suffer a $1bn writedown, investors would be out for executive scalps and pay consequences for those behind it. It should be no different for those managing billions of dollars in members’ retirement savings.

The FAR will go some way to formalising accountability at super funds next year, but there is also nothing stopping the funds themselves from imposing financial and other consequences where relevant at present.

In February, insurance companies and super funds will have to register accountable persons under the FAR giving the prudential regulator a clear line of sight into who is responsible for what.

Banking

Banks were earlier caught by the Banking Executive Accountability Regime, which started in 2018, as pressure mounted on the sector due to the Hayne royal commission and a litany of poor customer treatment and compliance outcomes. The royal commission’s final report the following year recommended the extension of the Banking Executive Accountability Regime to cover all entities within the oversight of the Australian Prudential Regulation Authority.

The Banking Executive Accountability Regime then morphed into the broader Financial Accountability Regime, with the latter becoming effective for banks in March this year.

A key component of the FAR is ensuring that a proportion of pay for executives in the industry is deferred, allowing the clawback of money if warranted.

The regime is, however, not retrospective meaning the super funds are somewhat in the clear until March 2025.

With regards to HESTA, APRA has closed its investigation without further action after the fund’s decision to make payments to affected members and fix its valuation policies and procedures.

The regulatory intervention needs to serve as a wake-up call to the fund and despite there being no contraventions of the law, members certainly deserved better from the stewards of their retirement savings.

HESTA’s annual report says: “We attract innovative and transformation-ready people who can deliver outstanding outcomes for HESTA members. Leadership and accountability are expectations for every person in every role, and this drives performance right across the fund.”

The fund’s governance and remuneration committee outlined its 2024 focus areas as including the consideration of new nominee directors, the appointment of an external adviser to the risk committee to further boost the required skills, and the implementation of obligations under the FAR.

Cbus confronts a turbulent period ahead as it seeks to improve its governance and operational practices.

It made new appointments to its board on Tuesday after three CFMEU directors were forced off in August after the federal government tipped the union into administration. That followed allegations of corruption within the union and links to criminal gangs.

APRA has imposed licence conditions on Cbus and on Tuesday said it was “not yet satisfied” the processes required to be undertaken under those conditions were complete.

Retail super funds including Insignia, then called IOOF, and then National Australia Bank-owned MLC were among players caught up in poor behaviour exposed during the royal commission. That immense scrutiny and a clean out of accountable executives led to sweeping changes across the for-profit part of the sector.