On Tuesday (18 January), the industry fund was hit with the penalty for “providing members with misleading information regarding their insurance and failing to breach report the issue to ASIC in the time required by law.”
Between 2017 and 2020, Statewide was found to have sent over 14,000 annual statements or other correspondence to at least 7,000 members representing that they held insurance within their superannuation where their insurance cover had lapsed.
Statewide was found to have overcharged insurance premiums of at least $2.5 million to some members and failed to report these issues within 10 days of becoming aware of them.
A Statewide Super spokesperson responded to the penalty in a statement given to ifa.
“Statewide Super notes that the Federal Court has chosen to impose a lesser penalty than that sought by ASIC. Statewide Super advises that it has the appropriate insurance and this penalty will not be paid for by members,” the statement read.
“At no time did ASIC alleged any dishonesty, fraud or intent to mislead or deceive members. Justice Besanko’s reasons reinforce this, acknowledging the conduct of Statewide Super was never deliberate or motivated by profit and the organisation took steps to investigate and remedy the problems. He also noted the fund’s contrition and cooperation.
“Statewide Super self-reported the insurance administration error, did not intentionally provide any incorrect information to members in relation to their insurance status, nor intentionally charge incorrect insurance premiums.”
The spokesperson said that all affected members will be fully remediated and that all insurance entitlements will be honoured.
The remediation process is to be finalised in the coming weeks.
This is why there should not be any reserves in any public offer or industry funds. there are nolonger resevres in SMSFs.
Generally these reserves are built up from profits of the fund in very good years to enable the fund to smooth out its returns in years where the profits are not good.
An event which is misleading to the members as they are being induced into thinking that the fund makes stable and secure returns each year. whcih is not always the case.
It also looks better in the super performance tables, and is used in marketing and advertsiing of the funds
So infact these are members funds that have been taken off the members whose funds earned them, and distributed out to other members in future years, which may not be the same memebrs that earned the funds.
It is a practice that nees to stop. when will ASIC address this.
Being a member I want the returns that I earn, in the year that I earn them. If that means I make a loss then that is the case. I do not want my returns to help another member later when I am no longer a member of that fund.
Just think how big te reserves of some fudns must be after one of the longest Bull runs in history.
It is the trustee of the Fund, not the administrator which is the RSE ..the regulated entity which is responsible for the fines and penalties. This whole area is very complex now. Not certain that the insurer will cover penalties now at all. Post Hayne changes to Sections 56 and 57 of the SIS Act have potentially posed a lot of questions. Reserves are owned by the trustee, not members as confirmed by the Federal Court in IOOF, post Hayne. All super funds who basically have $2 paid up capital or similar on their balance sheets are scrambling to work out how they can exist going forward and still attract elected directors on 40-50k a year and they may have to now foot 1.1 million dollar fines and penalties, insurance to cover in the ether. Trustees 22.2 mill…many offences, 11.1 mill others. But potentially for corporate trustees as high as 545 million…..no one can insure for that.
I’m curious what ASIC would do if an Adviser sent out 14,000 incorrect statements, FDSes, Opt-Ins or SoAs to 7,000 clients AND then overcharged them. I believe that Adviser would have been banned for life and possibly even be facing jail time. Especially if one looks at some of the banning orders issued by ASIC in the last year or so, particularly the penalties handed down to late or not-submitted FDSes and Opt-Ins.
I agree Henry. Many advisers are trying to do the right thing and make errors not on purpose. ASIC would say you should have the systems in place, so please hand back your license. Never makes any sense.
That’s 5 years jail time per incorrect statement. Therefore 70,000 years…50,000 if behaviour improves.
I haven’t read the case in detail so I’m unable to make educated commentary. Having said that, perhaps ASIC/APRA should be involved in scrutinising where the funds are coming from & keep a close eye on any cooking of the financial books to ensure it isn’t somehow clawed back in future years.
As to industry funds “being run only for the benefit of members”, perhaps the ACCC should be looking at that (& similar) statements made by industry funds in light of deceptive & misleading conduct provisions.
Who am I kidding? Can someone pass me a glass of red wine?
It’ll just come out of the reserves of the fund. So not directly member funds, but also it is?
Remember when IOOF did it to rectify a mistake that a third party made and they got dragged over the coals during the Royal Commission. Its a shame that this industry fund doesn’t get the same coverage.
Who “owns” the Reserves of a fund?
Its a very good question!.
I guess it depends on what type of reserve and how it was funded.
If its a reserve generated by tax savings and earnings on member’s contributions/balances then ideally it belongs to the members.
Or is it some sort of operational reserve that has been built up by a special levy etc for events like this.
I would say that this portion of the reserve doesn’t belong to the members.
I’m no legal expert though.
The Trustee.
IOOF won the case in court subsequently to the Royal Commission on that very point. Not member funds.
Did IOOF when or did APRA not have a case?
Did they not indicate in a quote above that they expected the amount to be paid by insurance?
But aren’t Industry Funds “only run for the benefit of members?” – so in that case – who else is going to pay the fine?
I believe their statement indicates their PI Insurers.
We all get to pay by increased premiums.
Section 56 and 57 changes to SIS post Hayne allied with Sections 199A and 1317G of the Corps Act actually provide a deal of difficulty for PI Insurers now.
Unless the courts are going to impose Financial penalties directly on Administrators how else other than members can the penalty be paid? The courts should providing a solution not just dictating their thought bubbles.
It is the Trustee of the Fund that is the RSE (Responsible Entity) not the administrator.
1) So the members pay the premiums for the Insurance Policy to protect the Administrators? That’s the penalty.
2) Now, it also appears the Administrators over charged premiums by around $2.5M. Money would already spent on the wages and bonuses of said Administrators (not for profit remember just money for the Administrators) so where will this money be refunded from – the Administrators personally, the Members or is the an Insurance policy for this as well?
3) Insurance policies will be honoured – who is paying for this – members, Administrators or another insurance policy paid for by the members?
If all covered by insurance policies, so like a great place to work – all mistakes covered by the members paying premiums to cover the Administrators?
All Trustees of Super Funds have run insurance policies from the moment they started. Originally, only professional indemnity, for the last 20 years or so…a Crime Policy (covering cyber and just normal fraud and dishonesty by workers) has ben held, plus a D & O Policy for directors and officers personally exposed. Elected Directors earn around 40k a year for their job on industry funds. Fines now payable by them, can range up to 1.1 million dollars. Would you want the job? Insurance may not actually cover them for post Hayne law changes and all Funds are scrambling to protect. Without protection, no one will put their hands up to be Directors of the corporate Trustee going forward. That is the reality.