Trustee governance and accountability Regulatory change

Indemnities and penalties

Changes to the trustee and director indemnity provisions under sections 56 and 57 of the SIS Act.

Financial Accountability Regime (FAR)

Trustees, by their nature, are the sole responsible decision-making entity for superannuation funds. They undertake to act for members and are responsible for administering and investing the fund assets for ultimate purpose of providing for retirement. It is an onerous role and one which understandably comes with intense accountability.

Since the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Hayne Royal Commission), there has been there has been an increasing focus on trustee governance and accountability within the superannuation industry, which is reflected in the tone, purpose and onerous requirements imposed, or to be imposed, through recent and proposed legislative reforms.

The most relevant reforms include:

Best financial interests and evidentiary onus of proof

Re-framing one of the central trustee and director covenants from the best interests duty to the best ‘financial’ interests duty, as well as the reversal of the evidentiary onus of proof in civil penalty proceedings under the Superannuation Industry (Supervision) Act 1993 (SIS Act).

Proposed introduction of the FAR regime, under the Financial Accountability Regime Bill 2021 (FAR Bill), that is intended to replace and extend the existing Banking Executive Accountability Regime (BEAR), with a specific extension to insurance and superannuation.

Best financial interests and the evidentiary onus of proof

Best financial interests' covenant

A central tenet of the Your Future Your Super (YFYS) reforms was to replace the best interests covenant with the best ‘financial’ interests covenant under the SIS Act for both trustees and directors.

Prior to 1 July 2021, the best interests duty was very much viewed as a decision-making duty that focused on the ‘inputs’ into the trustee's decision, and the decision-making process. The time for testing a trustee's decision was the time the decision was made, having regard to what the trustee knew at the that time, and not with the benefit of hindsight. The duty was also bound by the terms of the trust deed, and the law including the purpose of the trust and the concomitant sole purpose test.