THE COMBINATION of a new wave of proactivity at the Australian Prudential Regulation Authority (APRA) and the Federal Government’s financial services reforms is predicted to create a boom for compliance lawyers in superannuation this year.
Law firms and superannuation fund managers have been preparing themselves for a close relationship in the lead up to APRA’s new licensing regime following demands for strict compliance with the law.
Mallesons Stephen Jaques partner Ceri Lawley, specialising in superannuation, agreed that compliance was a “big issue”. She said that there were two significant factors that would see superannuation fund managers held to stringent rules for compliance, which will provide a lot of work for lawyers in 2004.
The first of these is the Safety in Superannuation Act 2003, passed in November, which introduced a licensing regime requiring funds to be licensed by both ASIC and APRA. Starting in July this year, it will have a two-year phasing-in period. “It’s going to create a lot of work for superannuation funds in the next two years, and therefore a lot of work for lawyers and law firms,” Lawley said.
Also predicting that compliance would create a lot of work this year in superannuation, Freehills partner Terry Bridgen said that APRA wants fund managers to understand certain factors that will enhance competency. This includes risk management, what resources they need, and how they can provide the best product for their clients. “They are demanding trustees are operating their funds competently,” he said.
“In a number of cases, APRA is taking the view that because of the size or the level of competence, the funds should not be acting alone, and members would be better off with a larger fund with more clearly defined procedures and a higher level of competence,” Bridgen said.
Hunt & Hunt partner Scott Hay-Bartlem explained that the new licensing regime emanates from concerns for the safety of superannuation. “It’s about making sure people’s super is safe no matter what fund it is in. There has been a concern that some smaller funds don’t have the correct people and systems in place to protect people’s money,” Hay-Bartlem said.
The second factor that law firms identified as likely to create a flood of compliance work this year in superannuation is the Financial Services Reforms Act (FSR), which applies from 11 March this year. The new regime requires superannuation fund managers to present product disclosure statements. Mallesons partner Lawley explained that the FSR “is trying to bring all products under the same net, across the entire industry”.
“This has been going on for two years, because of the upcoming deadline there has been a rush, which has generated masses of work in the superannuation area for lawyers,” Lawley added.
The reforms will have a massive impact on funds that do not have appropriate systems set up. “This means more systems, more evidence of following the systems, and it means more formalisation for systems of compliance,” Hunt & Hunt’s Hay-Bartlem said.
For law firms, the changes and demands of compliance means more work. Although APRA is not calling it compliance, but rather having a focus on corporate governance, it is the compliance sections within superannuation in law firms that will be grateful for the windfall of work.
“We have a substantial increase in work [at Mallesons] because trustees of super funds cannot ignore the legislation. They need to either comply, work out strategies to merge with bigger players or work out other strategies to comply,” Lawley said.
Freehills also recognised the impressive impact on law firms with superannuation fund management clients. Pressed as to whether Freehills would be greatly affected, he noted that the larger fund managers the firm has on its books tend to have the systems in place already. “[The reforms] tend to be at the smaller end of the market, and we are seeing only a bit of this,” he said. “Other firms will be responding to APRA’s views and concerns, and will be helping funds merge into bigger funds.”
Minter Ellison senior associate Stephen Cullen acknowledged the inevitable increase in work for lawyers, but pressed the responsibilities that law firms have to help their super fund manager clients. “We would rather have laws that our clients are able to understand,” he said.
Noting the need for many smaller funds to merge with larger ones so that they can comply more easily with APRA’s stringent regulations and the “compliance avalanche”, Cullen said that law firms need to come up with suitable solutions for their clients. “The market trend seems to be mergers with larger funds,” he said. “Our role is to ask [funds] if they can cope with it, or whether they can cope as they are.”