Thursday, October 20, 2016

Bank owned super funds accused of gouging by delaying switch to default schemes

Banks are being accused of gouging customers by delaying the transfer of superannuation accounts into lower cost default superannuation funds.

Under new rules, retail funds have been given four years to switch accounts nominated as "default" into cheaper My Super products with a deadline of 1 July 2017.

But research out today suggests bank-owned funds are dragging their feet by leaving default super in high cost legacy funds for as long as possible.

A study by Rainmaker Information commissioned by Industry Super Australia says banks are profiting by between $800 million and $1.8 billion in fees by stringing out the transition to approve default funds.

Rainmaker says given the aim of MySuper is to provide a default option for "disengaged passive members", the motivation of bank-owned funds need to be examined.

"The core question is to what extent have funds expedited this transition," the research suggests.

"This question is crucial because Rainmaker's annual superannuation fee surveys have revealed that MySuper products are on average 30% cheaper than regular corporate retail solutions.

"So the sooner members transition across to these lower cost products the sooner they start saving fees."

Industry Super Australia chief executive David Whiteley told the ABC's AM program the behaviour of bank-owned and retail funds was "unconscionable" and undermined public confidence in the compulsory superannuation system

"The retail and bank-owned super fund practice of leaving members' accounts languishing in more expensive legacy products requires greater scrutiny," Mr Whiteley said.

"The regulator would do well to ask if the product trustees are fulfilling their legal duties to put the interests of members over profits generated by wealth businesses inside the banks."

The research shows that although not for profit funds completed the transfers to MySuper by June 2014, retail funds are lagging with just 43 percent of funds switched by June 2016.

The Financial Services Council, which represents bank-owned and retail funds, maintains there is a clear timeline for the transfer to default funds.

FSC director of policy Andrew Bragg told the ABC that all existing money in the default super system must be transferred by June next year under longstanding legislation.

However, Mr Bragg said more competition was required as recommended by reviews conducted by Jeremy Cooper in 2010 and David Murray in 2014.

"Until there is competition for the $10 billion default contributions each year, MySuper will be an unfinished reform, " Mr Bragg said

Tuesday, October 18, 2016

RBA governor Philip Lowe warns Trump victory would not be a "benign event" for world

The governor of the Reserve Bank says the election of Donald Trump as US president would not be a "benign event" for the global economy.

Dr Philip Lowe says while there is no specific scenario planning for an increasingly unlikely Trump victory, the RBA prepares for events that could rock financial markets.

In his first official speech as RBA governor, Dr Lowe said the rise of protectionism was at the top of a list that was making him more worried.

Listen to the story here

Read the story here

Regulator puts banks, insurers on notice over risk culture

The prudential regulator has put banks and insurance companies on notice to improve their risk culture or face "greater supervisory intensity".

The Australian Prudential Regulation Authority (APRA) says the financial sector needs to pay greater attention to risk, warning that many institutions are "grappling" with how to best improve their risk management.

In an information paper released this afternoon, ARPA chairman Wayne Byres told institutions the regulator would step up surveillance if needed.

"APRA cannot regulate sound risk culture into existence," Mr Byres said.

"However, APRA will apply greater supervisory intensity to institutions that are either unwilling or unable to address behaviours that are inconsistent with prudent risk management practices."

APRA will also review the remuneration policies and practices of institutions it supervises to determine what role salary and incentives play in risk culture.

The information paper describes remuneration frameworks as "important barometers and influencers of risk culture."

The review will also examine the arrangements and outcomes for some senior executives and "material risk takers" at a sample of financial institutions.

APRA's review comes as co-regulators like ASIC (Australian Securities & Investments Commission) investigate banks and insurers over alleged unethical or unlawful banking behaviour.

Last week, ASIC released a report on the life insurance industry showing a high level of rejected claims for total and permanent disability (TPD) and trauma.

ASIC is also investigating the scandal at the Commonwealth Bank's insurance arm CommInsure as revealed by an ABC Fairfax investigation.

The chief executives from the major banks were grilled by a parliamentary committee a fortnight ago as the federal government continues to rebuff calls for a Royal Commission into the banking sector.