RESERVE Bank governor Ian Macfarlane has issued a warning about the regulation of 10,000 small and medium sized superannuation funds supervised by the Australian Prudential Regulation Authority.
Appearing before a Commonwealth Parliamentary committee earlier this month, Mr Macfarlane also criticised the general insurance industry for opposing measures to lift its standards.
Mr Macfarlane, who is a director of APRA, told the committee that some intermediate-sized funds, including company-based funds with up to 100 members, had been involved in “very irresponsible financial transactions and related party transactions”.
“The public has a right to think that that should not happen because if you were a member of those funds you could lose your life savings,” he said.
Mr Macfarlane acknowledged that “the majority, of course, will no doubt be extremely well run, but there will always be a fringe that are not and it is extremely difficult to identify where that fringe is because the numbers are so huge”.
“Somehow or other we have to find a way of reducing the number by imposing some licensing standards or capital requirements. Either that, or just find a massive amount of new resources for APRA,” he said.
In contrast to his concern about intermediate-sized super funds, Mr Macfarlane said there were no regulatory problems regarding either the big public-offer super funds and industry funds of the small self-managed funds (which have less than five members and are regulated by the Australian Tax Office).
The total number of super funds in Australia is just more than 217,000. Of these, more than 214,000 are categorised as small funds with less than five members.
Mr Macfarlane said the collapse of HIH Insurance had led to the general insurance industry accepting the need for improved regulation.
“APRA has worked very hard to bring the supervision of general insurance up to date against, as I have said, considerable opposition,” he said.
