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Lecture 4

Week 4

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1 AYB240 – SUPERANNUATION REGULATION AND PRACTICE LECTURE 4: GOVERNANCE OF SUPER FUNDS – MANAGEMENT Trust Structure  Constituted by a trust deed  Trustee or trustees hold and administer property (trust estate)  Trust estate held on behalf of beneficiaries o Beneficiaries are entitled to share trust estate Trust Deed (‘governing rules’)  Sets out the terms for how trustees MUST deal with trust property for the benefit of beneficiaries  Trust has one or more trustees o Individual(s)  Board of trustees o Corporate trustee  Board of trustee directors Appointment of Trustees  Upon appointment, trustee has all powers conferred by the trust deed and relevant laws o Trustees can be members of the fund  If trustee a company, all directors personally bound by the governing rules as if they are the trustee themselves  Period of office is in accordance with the governing rules Eligibility to be a Trustee - Individual  Cannot be a trustee if a “disqualified person” o Convicted for offence involving “dishonest conduct” o Received civil penalty order o Undischarged bankrupt o Disqualified for breaches of SIS Act or Financial Sector (Collection of Data) Act 2001 Eligibility to be a Trustee - Company  Cannot be a trustee if o Any one of directors or secretary or executives is “disqualified person” o Company is receivership, administration or liquidation or being wound up Must advise regulator if Trustee becomes “disqualified” Removal of a Trustee  Regulator (APRA or ATO) can suspend or remove trustee o Trustee becomes “disqualified” o Serious breaches of SIS Act o Financial position of the fund o RSE licence is cancelled jeopardised o Breach of licence conditions 2 Trustee Licensing  APRA-regulated funds must have Registrable Superannuation Entity (RSE) licence o Meet operating standards  E.g. risk management, fitness and propriety, adequacy of resources  AFS (Australian Financial Services) licence o If provide financial advice and/or deal in financial products o Financial products include superannuation Basic Equal Representation Rule (SIS s10 and s89)  Board of trustees or board of directors of corporate trustee must consist of equal numbers of o Employer representatives o Member representatives  Independent trustee (e.g. Master trust) o Policy committee with equal representation Trustee Duties and Obligations  Duties and obligations arise from o Trust deed o Trust law o SIS Act and Regulations o Corporations Act and Regulations  AFS licensing  Product disclosure  Periodic reporting to members o Other legislation  Breaches (breach of trust) subject to civil and criminal penalties o Includes civil action by fund members Trustee Covenants – SIS Act s52(2)  Deemed to be included in trust deed o Act honestly o Keep fund and personal assets o Exercise same degree of care, skill separate and diligence as ordinary prudent o Formulate and implement an person investment strategy o Act in best interests of o Manage reserves prudently beneficiaries o Allow members access to information and documents 3 Proposal for new governance model and competence standards Cooper Review Recommendation Government Response Create new office of ‘trustee-director’ with all Support in principle – will consider whether proposals will statutory duties set out in the SIS Act, along withachieve a more accountable and efficient governance focused duties regime; support need for heightened duties and will consult with stakeholders Trustee-directors not required to have specific preSupport in principle – refer to APRA to consider in appointment skills and training. consultation with industry APRA to consider further strengthening its administration and ‘fitness’ test. A Code of Trustee Governance should address ongoing training requirements Board of trustees demonstrates on an annual basis Support in principle – refer to APRA to consider, including that is has the collective skill set to govern the need for annual review – this should be subject to annual review Other SIS Obligations  Comply with sole purpose test  Comply with operating standards SIS Prudential Standards  Operating standards (SIS Act s 31) o Set of rules that g
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