"Strong, targeted enforcement action" on the Superannuation sector

With the compulsory superannuation regime and seemingly endless growth of retirement savings in Australia, it comes as little surprise that superannuation funds have and will continue to face increased scrutiny in 2024, with ASIC making its position clear that it will look to take "strong, targeted enforcement action".

At the same time, ASIC also stated that its increased focus on the best interests of members in the superannuation sector was part of its continuing work to ensure better consumer outcomes in the sector. Its focus reflects the increased scrutiny of superannuation funds in recent years, as both regulators and members seek to hold trustees accountable for potential breaches of their legal and trustee obligations.

ASIC's media release is a good opportunity to pause and reflect on the recent notable enforcement, regulatory and class actions in the sector.

Greenwashing

It is no secret that ASIC has been heavily focused on alleged greenwashing, particularly in the superannuation industry. We have previously written about the first, second and third greenwashing proceedings commenced by ASIC. What will be interesting to see is whether and, if so, how, any class actions will seek to monetise alleged greenwashing by superannuation trustees or other entities. The traditional paths to pursue a class action claim are difficult, because it is not immediately apparent what financial loss is suffered by a member or investor who was misled and proceeded to place their funds into a "non-green" investment. Indeed, the "non-green" investment may have outperformed a "green" investment. Those interested in pursuing such claims are creative, and we envisage they will likely wait for the outcome of the three current ASIC proceedings to see how the law settles, before bringing a claim themselves. The penalty hearing for the first greenwashing proceeding was on 7 December 2023, before Justice Horan. The market is watching closely to see what penalty is imposed by the Court.

ASIC will continue to crack down on alleged greenwashing, with this once again being a standalone enforcement priority for the coming year.

Civil penalty proceedings commenced for alleged failing to merge the accounts of members

In September 2023, ASIC commenced civil penalty proceedings in the Federal Court against a superannuation trustee for allegedly failing to merge the accounts of members with multiple member accounts over a period of almost 10 years. Various allegations are made, including relation to the superannuation trustee not acting efficiently, honestly and fairly and being in breach of its trustee duties.

It is alleged that approximately 90,000 members are affected, costing members approximately $69 million in losses through multiple administration fees, insurance premiums and lost investment earnings on those amounts. The matter is currently case managed by Justice Hespe. The superannuation trustee has responded to ASIC's concise statement and the parties are required to file a Statement of Agreed Facts with the court by mid-February 2024.

Civil penalty proceedings commenced testing internal dispute resolution requirements

In November 2023, ASIC commenced civil penalty proceedings in the Federal Court against a superannuation fund in the first case testing the internal dispute resolution requirements under s 912A(1)(g) of the Corporations Act which requires a financial services licensee to have adequate dispute resolution systems in place that comply with the requirements and standards outlined by ASIC. (Regulatory Guide 271 Internal dispute resolution sets a maximum timeframe of 45 days (with limited exceptions) to issue a written response for complaints about superannuation. ASIC alleges that the superannuation fund failed to respond to 106 complaints within 45 days, inform 85 complainants about why there was a delay in responding to their complaint and inform 22 complainants about their right to take their complaint to AFCA. This proceeding will be watched closely by the AFSL holder community, as it is common (often for good reason) for some of these strict timeframes to be missed.

Infringement notices issued for alleged false or misleading statements in marketing materials

In November 2023, ASIC issued three infringement notices to a superannuation fund for alleged false or misleading statements made in its marketing material. ASIC alleges that the 10-year performance figures of the superannuation fund's 'Balanced Growth' superannuation investment option mislead consumers into believing that they were up to the present day, when the period used by the superannuation fund to calculate those figures had ended between 5 and 14 months prior to publication.

In ASIC's media release from 10 November 2023, ASIC Deputy Chair, Sarah Court, said, "Funds commonly focus on performance in their advertising and promotional material. Advertising involving performance figures needs to be clear and transparent about how those figures are calculated. This allows consumers to make informed decisions, including choosing or moving between funds." The superannuation fund has paid $48,600 to comply with these infringement notices.

More generally, and as we have seen particularly in the greenwashing space, infringement notices are becoming a common tool used by ASIC to deter the market from engaging in certain conduct. At a practical level, while they come with the associated negative publicity, infringement notices are inexpensive for recipients to deal with compared to the alternative of civil penalty proceedings. The costs involved in "appealing" an infringement notice are likely to significantly exceed the amount of the infringement itself. In this sense, an infringement notice is often a welcome alternative to civil penalty proceedings.

Class actions commenced against various funds

Beyond enforcement actions by regulators, superannuation funds have been facing increased scrutiny by members in the class action space.

Three class actions filed against superannuation trustees have recently had settlements approved by the Federal Court and the Supreme Court of NSW:

• On 20 June 2022, the Federal Court (Murphy J) approved the $56.3 million settlement of a class action filed against a superannuation trustee and its former executive director who were accused of failing to meet their trustee duties under the SIS Act. The Applicant alleged that the superannuation trustee failed to transition $3.2 billion of accrued default amounts of members in a way that was both timely and in the best interests of those members, which resulted in those members paying higher fees and receiving a lower investment return for an extended period of time.
• On 27 October 2022, the Supreme Court of NSW (Stevenson J) approved the $33 million settlement of a class action filed against a superannuation trustee and two of its directors concerning the ongoing payment of fees charged by the superannuation trustee to members and commissions made by the superannuation trustee to Financial Services Providers that were funded by the fees paid by members. The Applicant alleged that, by continuing to charge excessive fees to fund the ongoing payment of commissions to financial services licensees, the superannuation trustee breached its trustee duties under the SIS Act, and its analogous duties in equity.
• On 13 November 2023, the Federal Court (Murphy J) approved the $29.5 million settlement of a class action filed against a superannuation trustee who was accused of breaching trustee duties under the SIS Act owed to members who invested in the Cash Option, by virtue of the superannuation trustee investing member’s funds via its former related entity. The Applicant alleged that the superannuation trustee's contraventions caused loss to be suffered by the Applicant and group members to the extent that higher investment returns would have been earned if those contraventions had not occurred.

At present, there are seven ongoing superannuation class actions before the Federal Court, with one of those class actions being filed as recently as 5 October 2023. There is also one ongoing superannuation class action before the Victorian Supreme Court.