Posted on 05 Feb 2019
The Banking Royal Commission’s recommendations could completely shake up the superannuation industry, according to leading class actions law firm Slater and Gordon.
Slater and Gordon Head of Class Actions Ben Hardwick said: “The Commission’s report and recommendations come as a timely wake-up call to the big banks.”
“The Royal Commission has exposed a financial services industry which has lost its way. Time after time, some of Australia’s most trusted institutions have been found to have acted with naked self-interest, paying scant regard to their legal and ethical obligations. It has brought into the spotlight the many illegal practices in the banking, superannuation and financial services industry,” Mr Hardwick said.
“The recommendations – if adopted – will have serious ramifications for the superannuation industry, and in particular, bank-run super funds.
“If the Government acts on all 76 recommendations, we are likely to see better outcomes for consumers over time. However, the provision of adequate funding to regulators to deliver the type of tough enforcement action called for in the report – in addition to a robust and healthy class action regime – is critical to the success of these reforms.”
“Slater and Gordon is running the only class actions in response to the evidence presented in the lead-up to the final report, and taking real and concrete steps to put money back into people’s pockets.”
Slater and Gordon Senior Associate Nathan Rapoport said evidence which shaped this week’s final report exposed the fact that superannuation trustees consistently failed to act in the best interests of their members.
“The report emphasised a severe conflict at the heart of the retail sector. The only way trustees can truly fulfil their duties to their members is if they recognise that the interests of the fund’s parent company are often opposed to the interests of the members,” Mr Rapoport said.
“Commissioner Kenneth Hayne rightly pointed out it should be of significant concern to regulators that professional trustees apparently struggle to understand their most fundamental obligation to act in the best interests of their members.”
While the report accepted that for-profit funds had consistently failed to perform their duties, it did not recommend extensive legislative change or a “new layer of regulation”.
“We agree with the report’s findings that it is imperative trustees of superannuation funds – and their directors – need to focus on performing their obligations – not the profits of their parent company,” he said.
While the report stressed stricter compliance and enforcement of the current law rather than fundamental changes to the law, it has highlighted the importance of regulators bringing ‘strategic enforcement litigation’ – litigation brought to address the immediate harm caused by superannuation trustees, and to deter future conduct.
“What this report has demonstrated is that many superannuation trustees have been consistently breaking the law with impunity. That’s why Slater and Gordon launched the Get Your Super Back Campaign,” Mr Rapoport said.
In October 2018, Slater and Gordon filed the first class action of the Get Your Super Back campaign, against Colonial First State and the Commonwealth Bank of Australia (CBA).
Slater and Gordon allege that Colonial First State put the profits of its corporate group above the interests of its members. It is alleged that Colonial First State failed to obtain the best interest rate available for members, instead accepting a much lower rate from its parent company, CBA.
Beyond superannuation, Slater and Gordon Principal Lawyer Andrew Paull welcomed the report’s recommendation of a deferred sales model for add-on insurance products, including the sale of junk credit card insurance.
Evidence heard during the Commission revealed banks were using aggressive tactics to push their most vulnerable customers, including the unemployed and those with a disability, into credit card insurance policies they either could not afford, or would never be eligible to claim against.
“Credit card holders already pay millions to the banks via fees and interest charges, before the additional strain of an insurance policy that they can’t even claim on,” Mr Paull said.
“These policies were incredibly expensive and of little to no value, and while they were intended to cover credit card repayments in the event of serious injury or unemployment, banks have knowingly been selling them to vulnerable people who could not claim the major benefits.
“However, it is big business for the banks; $339m was collected in consumer credit insurance premiums in 2017 alone.
“While we back the Commission’s proposal to defer the sale of credit card insurance, we had hoped that the Commission may have gone further and prohibited the banks from continuing to sell this low-value product.”
Slater and Gordon launched a class action against NAB and MLC in September last year, alleging that by knowingly selling the product to people ineligible to claim, such as the unemployed and disabled, they had engaged in unconscionable conduct, in breach of the ASIC Act 2001 (Cth).
For more information, visit our Class Actions page