Banks scandals bill at $480m as industry super fights back governance reforms

Source: Industry Super Australia

Scandals, alleged misconduct, and poor financial advice have cost major banks and insurance companies almost half a billion dollars in payouts and compensation over the past two years, according to research by Industry Super Australia.

The largely union-backed umbrella group is using the rising payouts bill for banks and insurers in its ongoing battle to thwart moves by the Federal Government to overhaul the composition of superannuation fund boards to mandate at least a third of trustees are independent.

In addition to shaking up the role of trustees, the government is also pushing to ensure the chairs of super boards are independent.

Evidence to be presented to a Senate committee examining the governance of super fund boards will claim that banks and insurers paid out more than $480 million in compensation, reimbursements and refunds for alleged financial misconduct.

Industry Super head of public affairs Matt Linden will present the scandals line by line which includes $200 million of "money for nothing" compensation after banks charged for advice fees but provided no service to clients.

"These are only the things that have been made public where there's been admitted fault. It doesn't include scandals that we've seen on the front page recently around things like alleged money laundering," Mr Linden told the ABC's AM program.

"We certainly do not accept the proposition that mandating a particular quota of independent directors drawn from the finance sector is a sensible way to outcomes for industry super fund members."

Key brands named by Industry Super Australia include flashpoints of recent scandals including CommInsure, Commonwealth Bank, ANZ, Westpac, National Australia Bank, Bankwest, AMP.

Industry Super Australia (ISA) argues that in contrast not-for-profit industry funds have avoided scandals and continue to outperform funds owned by banks and insurers.

As the government attempts to push through changes to trustee arrangements, ISA maintains that the "equal representation model" where trustees are split between employers and worker representatives continues to be used by the world's top performing super funds.

Financial Services Minister Kelly O'Dywer has consistenly rejected claims the push to overhaul super boards is part of an idealogical union busting mission.

Ms O'Dwyer recently announced the superannuation overhaul bills would be re-introduced being defeated in 2015 by the Senate crossbench led by Senator Nick Xenophon.

However, Matt Linden is confident of once again winning support to block the legislation.

"When I've talked to those crossbenchers they have not had people walking in their doors complaining about the returns they're getting from industry super funds," Mr Linden said.

"However they'd had dozens come in their doors which been ripped off in scandals perpetrated by the banks."

The payouts are based on public information and cover a two year period from September 2015 but do not include private settlements or payments made to financial literacy or community programs.

The government is also facing a fightback from other parties such as the Australian Institute of Superannuation Trustees.

"It is inappropriate to mandate a governance model to apply to all superannuation funds because no evidence has been presented that the current system is failing or that mandating independence would be beneficial," the AIST submission says.

ISA also says it is false to the government to claim that having independent directors on boards is international; best practice.

ISA quotes research showing the 70 percent of independent directors are either current or former chief executives with 60 percent coming banking or resource sectors.

In addition to Industry Super Australia, the hearing by the Senate Standing Committee on Economics will take evidence from David Murray (head of the government's financial system inquiry), former ACCC chairman Graeme Samuel and the former Reserve Bank governor Bernie Fraser.

The Australian Securities & Investments Commission, the Australian Prudential Regulation Authority, the Financial Services Councilm the ACTU and Treasury have made submissions to the inquiry and will also give evidence.