Trustees in Australia’s superannuation industry have revised their internal policies and procedures after an ASIC surveillance found significant deficiencies in their conflicts management arrangements relating to investment switching.

ASIC found a lack of oversight and control measures in relation to investment switching. ASIC expected to find robust systems in place to prevent directors and senior executives from potentially misusing price sensitive information for personal gain. However, the surveillance revealed a lack of strong oversight in this space.

ASIC has written to the 23 trustees who were reviewed, outlining our concerns and requesting they take steps to improve existing policies and procedures.

In response to ASIC’s concerns, trustees have committed to implement a range of changes to improve arrangements for managing conflicts. These include:

• Updating or establishing policies and practices to address the deficiencies ASIC highlighted by:
• identifying switching as a potential conflict of interest;
• incorporating steps to prevent inappropriate trading (such introducing blackout periods or trading windows);
• expanding conflicts arrangements to cover trading by related parties of directors and senior executives;
• Increasing board-level engagement so there is greater board oversight, input and direction. For instance, increased monitoring of staff transactions and reporting back to the board, including on switching activity;
• Increasing staff awareness of the policies and their obligations through greater internal communication and training; and
• Undertaking an independent review of the trustee’s broader conflicts management frameworks.

Trustees are providing ASIC with details of the steps they are taking, including a copy of updated policies and procedures.

ASIC Commissioner Danielle Press said, ‘Appropriate governance is integral to maintaining consumer trust and confidence in the superannuation industry. This is not something you can set and forget. Trustees must have conflict management arrangements in place that are continually reviewed and tested to ensure they remain appropriate.’

ASIC has also completed our review of a range of transactions during the 2020 calendar year by directors, senior executives or their related parties. These transactions involved the switching of investment settings, changes to investment contribution allocations and superannuation contributions, and the withdrawal and roll in of superannuation monies.

Based on the evidence obtained during our surveillance, ASIC is satisfied no further action is warranted against any individuals in relation to the identified transactions.

ASIC will continue to work with APRA on ensuring trustees have appropriate policies and procedures in place to manage possible conflicts of interest. Trustees of superannuation funds are managing billions of dollars on behalf of their members and their conflicts management arrangements need to be commensurate with the level of responsibility they have.

Background

ASIC’s previous media release, 21-282MR Surveillance of investment switching by super fund executives, outlines concerns identified from the review of 23 trustees (including trustees of industry and retail funds).

As previously outlined, although this switching activity does not generally involve the acquisition or disposal of a new financial product to which the ‘insider trading’ prohibition attaches, investment switching with the benefit of price-sensitive information that is not available generally is similar to insider trading and may contravene other provisions of the law.