By Paulina Duran
SYDNEY (Reuters) - Some of the firms that manage funds within Australia's A$2.6 trillion ($1.9 billion) pension system may not be complying with their legal duty to put the interests of customers ahead of their own, a powerful inquiry into financial misconduct heard.
Over the past two weeks, the Royal Commission has revealed examples of major breaches of responsibility, dishonorable conduct and fee-gouging by institutions that hold workers' retirement accounts, known as superannuation locally.
The Commissioner may conclude that "some (superannuation managers) are not, as they are obliged to do, prioritising the interests of their members over the interests of others, including themselves and the groups of which they are parties," said Michael Hodge, a barrister assisting the year-long investigation.
Firms that came under fire in this round of hearings include National Australia Bank after one of its units charged more than 220,000 customers for advice they did not receive.
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On Thursday, AMP Ltd was accused of insufficient oversight of its funds' management, with the inquiry hearing that some of its members received negative returns on cash accounts due to high fees.
The inquiry, which has also exposed widespread wrongdoing in the banking and wealth management industries, is due to submit its recommendations to the government in February, which could include criminal prosecutions and sweeping reform of the financial system.
"Members of superannuation funds, like most beneficiaries, are vulnerable ... many are disengaged and disadvantaged by a lack of financial literacy," Hodge said.
"They are readily able to be taken advantage of. And the evidence.. suggests that this has occurred in some cases."
Reserve Bank of Australia Governor Philip Lowe lambasted financial firms over the string of revelations at the inquiry in comments before a parliamentary economics committee on Friday.
"I have to say that I have been incredibly disappointed and in many, many cases appalled by what has come out from the Royal Commission," the central bank chief said.
Major banks are already preparing for change by spending more on compliance and governance, provisioning for fines, selling wealth management businesses and returning to core lending.
The Australian Securities and Investments Commission's (ASIC) deputy chairman, Peter Kell, told the inquiry on Friday there was a "very high likelihood" that it would soon launch proceedings against banks and other institutions which had wrongfully taken about A$1 billion from their customers without providing services, dating back to 2008.
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Earlier on Friday, top financial regulators took the stand at the public inquiry to defend their low-key enforcement of laws designed to protect pension fund members.
A senior executive of the Australian Prudential Regulation Authority (APRA) said its "behind-the-scenes" approach to dealing with breaches by large institutions was to limit damage to pension fund members.
Hodge also asked why APRA had not considered whether NAB, Commonwealth Bank of Australia and other firms that had charged excessive fees or not delivered services as charged, were breaching laws that required them to act in the best interest of its members.
Deputy Chairwoman Helen Rowell said APRA did not want to intervene in an industry-wide investigation by ASIC.
Hodge countered that ASIC's responsibilities did not include determining whether entities like pension funds were acting in the best interest of members as required under trust law.
And Hodge then sought an explanation from ASIC about why it had only "bluffed" and not launched legal action against Australia and New Zealand Banking Group, which sold over A$3 billion worth of complex pension products without proper advice to customers.
ASIC executive Tim Mullaly said it saw an enforceable undertaking as a faster way to stop the practice. As part of the undertaking, ANZ has promised to stop the practice from Aug. 18.
There will be two more rounds of Royal Commission hearings - one in September focusing on insurance and another in November that will look at policy questions arising from the first six rounds.
($1 = 1.3753 Australian dollars)
(Reporting by Paulina Duran; Editing by Stephen Coates, John Mair and Edwina Gibbs)
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