The government has released draft legislation today that will require APRA-regulated superannuation Boards to be led by an independent Chairman and be comprised of a minimum of one third independent Directors.
According to Assistant Treasurer Josh Frydenberg writing in the Australian Financial Review, the proposed definition of an independent director has been adapted from that specified in the ASX Corporate Governance Council principles that apply to listed companies.
“An independent director in the superannuation board context should be one that is not a substantial shareholder of the trustee, does not have a material relationship with the trustee and has not been, in the past three years, an executive or director of a body that has had a material relationship with the trustee,” he stated.
A three-year transition period from royal assent of the legislation will apply to accommodate the usual appointment period of superannuation Board Directors, but new funds established after 1 July 2016 will have to comply with the legislation from their commencement.
He expected some funds to oppose the change with the argument that the current equal representation model had delivered good returns to members, however he stated there was no evidence the performance was due to the equal representation model.
He also noted that the Cooper Review into the Superannuation system and the Financial System Inquiry chaired by David Murray had both recommended reform of the current governance model, with the Cooper review recommending Boards be comprised of one-third independent Directors and Murray recommending Boards have a majority of independent Directors including the chair.
Additional points noted in the legislation:
- Boards are allowed a period of 90 days to replace an independent Director in the case of a vacancy.
- APRA may make prudential standards setting out in detail how the funds are required to transition to the new governance regime. The standards may also provide additional requirements for Director independence and define terms such as “material”.
- The new governance rules will not apply to self-managed superannuation funds. They will also not apply to a fund that has an acting trustee appointed under section 134 of Part 17 of the SIS Act.
- APRA can make a determination that a person is independent or not independent. It can also issue a direction to an RSE licensee to comply with the legislation as long as it provides reasons for issuing such a direction. Failure to comply without a “reasonable excuse” is a strict liability offence with a penalty of 100 units.
- Breaching the legislation’s provisions is not an offence but may result in a direction from APRA not to accept contributions.
Furthermore, changes to reporting requirements in the Corporations Regulations 2001 require Registrable Superannuation Entity (RSE) licensees acting as trustees of APRA-regulated superannuation funds to publicly report (on an ‘if not, why not’ basis) in their annual report whether they have a majority of independent directors commencing 1 July 2019.