Insurance is where “the rubber meets the road” with Section 56 amendment
The amendment of Article 56 to the Superannuation Industry (Supervision) Act 1996 not only has implications for the use of reserves by trustees, but also for the purchase of trustee indemnity insurance.
Appearing before a public hearing of the House of Representatives Economics Committee, the director of the Center for Law, Markets and Regulation at the University of New South Wales (UNSW), Professor Scott Donald, said that insuring directors’ liability was very important, but the insurance implications were where the ‘rubber meets’. the road”.
“We should not accuse administrators of innocent mistakes, or seek accountability when there is none,” he said.
“The trust structure was chosen as the legal basis for the superannuation industry, largely because of the way it concentrated responsibility and accountability on the office of the trustee, and the Article 56 and the recent amendments play a very important role in this respect.”
As part of the committee’s review of the Big Four Banks and superannuation industry, Donald’s expert advice was sought following several super funds seeking legal advice under the 56 to create pools of member funds to pay fiduciary fines – an issue that would particularly threaten industry super funds. who have no parent company to pay a fine.
Committee Chairman Jason Falinski asked Donald whether creating a penalty insurance market might create moral hazard in the way a fund performs its functions if it were protected against losses by the insurer.
In response to Falinksi’s question, Donald said the key question must be who pays for the insurance.
“One of the concerns I and others have had for some time is that prohibiting fund administrators from using members’ assets to meet sanctions would be compromised if you then allow them to use members’ funds. members to fund insurance that would pay out those liabilities,” Donald said.
“I want to point out that the law in this area is very complicated and it is not at all clear that the results you might want would be achieved in all situations, and I think it would be useful to clarify this space to ensure that this does not happen.
Donald said insurance could be provided to the trustee of the super funds as well as its directors, but any excess would have to be paid.
“It is also true that criminal sanctions of certain types cannot be assured,” he said.
“And so there are certain kinds of residual liabilities that trustees might face that insurance wouldn’t fully satisfy and so that’s one of the reasons why the trustee has capital that can help in appropriate circumstances, not in all circumstances… to meet some of these liabilities.