The Association of Superannuation Funds of Australia (ASFA) says super funds should not have to report why they do or do not have a majority of independent directors, under new legislation, if the requirement is only for one-third independent directors.
Legislation currently before the Parliament would require large superannuation funds to have at least one-third independent directors and an independent chair. Funds would also be required to report, on an ‘‘if not, why not’ basis, whether the fund had a majority of independent directors.
ASFA supports the new independent directors requirement, but not the reporting obligation.
“ASFA considers that it is inappropriate to create an obligation to report on an ‘if not, why not’ basis if funds do not have a majority of independent directors – when there is no legislative requirement to have such a majority,” said ASFA, in a submission on the Superannuation Legislation Amendment (Trustee Governance) Bill 2015.
“Having to report an absence of a majority of independent directors implies that having less than a majority of independents is somehow less than fully compliant, which clearly is not the case given the new SIS Act requirements only mandate a minimum of one-third independent directors.”
ASFA says the reporting requirement could cause confusion to members, impose unnecessary costs of funds and increase the regulatory burden.
“More importantly it may lead to appointments to meet compliance obligations rather than appointments based on merit.”
The Explanatory Memorandum to the bill says the reporting obligation would provide funds with the “opportunity to provide a clear indication of the rationale underlying their composition.”
“In particular, it allows the board to explain how it believes that its chosen composition will best serve the interests of fund members.”
However ASFA says that super funds can provide an explanation to members without having to justify not having a majority of independent directors, when only one-third are required by law.
“At a minimum, if the reporting obligation is to be retained, it should be amended along the lines of RSE [Registrable Superannuation Entities] licensees being required to provide a brief explanation in their annual report as to why they believe their chosen board composition is appropriate for their fund and serves the best interest of their members,” recommended ASFA.
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