Posted: 03 Dec. 2021 5 min. read

Super Conflicts

The COVID-19 pandemic has seen super trustees managing multiple issues simultaneously (for example, investment earnings impacts, hardship cases, and the early release scheme), not least extreme market volatility and unlisted asset valuation challenges. In Australia alone, pandemic led volatility saw falls of more than 30% in equity markets between February and March 20201. While trustees sought to navigate these issues, ASIC has concerns that super fund executives, including directors, officers and employees, acted out of self-interest without due regard to member interests and duties owed to members.

Management of conflicts of interest is a key requirement for both super trustees and officers and is a fundamental principle of trust law. Pre-pandemic, conflicts in super were brought into the spotlight by the Hayne Royal Commission2. Hayne’s findings and recommendations were focused on the foundational concept that a trustee must act in the best interests of beneficiaries and he noted the potentially derailing effects of conflicts of duty and interest in super.

It is against this backdrop that ASIC undertook surveillance regarding personal investment switching by directors and senior executives of super trustees3. In particular, ASIC was concerned that price sensitive valuation information, including asset revaluation timing, was being used by executives to switch investment options for personal gain.

What was the conduct?

As a result of market volatility, super trustees experienced significant impact on asset valuations. While this impact was obvious and was incorporated into unit prices for listed assets, the impact was less obvious for assets which were unlisted and had not been revalued. In this environment, personal asset switching raises important questions regarding the management of conflicts of interest by super trustees, and particularly:

  1. Did executives have knowledge of asset revaluation occurring, and the result of such revaluations, prior to their switching activity; or
  2. Due to information asymmetry, did executives understand that particular assets or asset classes would be impacted, prior to their switching activity.

The question of conflict arises because super trustees and executives are required to act in a way that is consistent with the best interest of all fund members and to consider whether their actions might have a significant impact on the best interests of members.  This encompasses the personal interests of trustee directors, executives and staff.

What does conflicts management in super require?

The superannuation legal and regulatory regime establishes the unique concept of relevant duties (owed to members or any other person) and interests (pecuniary or otherwise, held directly or indirectly).  Essentially this creates an environment where a trustee must always consider whether a duty or interest might reasonably be considered to have the potential to have a significant impact on the capacity of the trustee or executive to act in a manner which is consistent with the best interests of members.

Given this unique interplay of duties and interests, careful consideration is required of what might reasonably be seen as a conflict through four key lenses:

  1. Two duties: A conflict between the duties owed by the trustee director or executive to members and their duties to another person. The duty owed by the trustee to prioritise the interests of the members may be in conflict with a duty owed to someone else e.g. a contractual duty to an external investment manager in relation to revaluations.
  2. Member interest and trustee duty: A conflict between the duties owed by the trustee or executive to another person and the interests of members. The interest of members to maximise retirement savings in the fund may be in conflict with the legal duty owed by the trustee not to make use of information gained through position for personal gain.
  3. Trustee interest and duty: A conflict between the duties owed by the trustee to members and personal interests of the trustee or executive. The personal interests of an executive for example to avoid an investment loss for their own account may be in conflict with the duty owed by the trustee to prioritise the interests of the members.
  4. Two interests: A conflict between the interest of the trustee or executive and the interest of members. Here the personal interests of an executive for example to avoid an investment loss for their own account may be in conflict with the interests of members to be treated fairly and equitably.

Where there is a conflict, trustees must give priority to their duties to, and the interests of, members. In order to manage this complex (and often convoluted) regime, trustees must ensure there is a mature, effective and robust conflicts management framework in place.  The framework must provide reasonable assurance that not only are conflicts being clearly identified, they are being avoided or prudently managed as appropriate.  ASIC’s surveillance highlights that this is not occurring3  

What should trustees do now?

Conflicts of interest in their multiple forms continue to be an area of intense scrutiny by regulators with ongoing reviews by ASIC and APRA.  As Joe Longo, ASIC Chair, commented at the AFR Super & Wealth Summit 2021 “As trustees insource more in terms of market participation, they need to ensure they have robust risk-management, compliance and governance arrangements specifically focused on their obligations as market participants”. He was very clear that ASIC would continue to look closely at trustees complying with their significant duties under the law.

Two of nine super-specific recommendations made by Hayne were clearly intended to force avoidance of conflicts in super. In particular, Hayne made recommendations to prohibit super trustees assuming any other obligation or office and to preclude trustees acting as dual-regulated entities4. Both recommendations were intended to reinforce the legal obligation that in meeting trustee obligations, directors must give priority to the best interests of members above any other interest. 

In October, APRA published the results of its thematic review of unlisted asset valuation practices in super5.  APRA’s review was launched in response to the heightened market volatility prompted by the COVID-19 pandemic that saw increased member switching as well as early release of super. Importantly for conflicts in super, APRA found that inadequate revaluation frameworks exposed trustees to the risk of decisions being made in crisis that were sub-optimal and increased member inequity risk.  This was in part due to unspecified procedures within the board approved valuation policies intended to guide the actions taken by the trustee.

There is a clear connection between the operation of revaluation frameworks and conflict management frameworks. The latter must address the interplay of revaluation policy and procedure, and the conduct of trustee directors, executives, and staff when dealing with their personal super interests (both in a regular valuation cycle and out of cycle revaluation contexts).

The switching activity exposed by ASIC should be a call to action for trustees to review their conflicts management arrangements.

Trustees need to ensure they have a conflicts management framework that provides reasonable assurance that all conflicts are being clearly identified and avoided or prudently managed. 

Trustees should focus on the following:

  • Identification: does the trustee have robust mechanisms in place to identify and record all relevant duties and relevant interests? Do these mechanisms focus on the positive identification of all relevant interests that are opposed to the fundamental trustee duty to act in the best interests of members? Has the trustee explored various duty and interest combination scenarios to identify the types of potential conflicts that they may give rise to? Is there a process of identification that is regularly recurring? One thing Hayne called out in the Royal Commission was the tendency of financial services entities and governing bodies to be “blind to their own faults”6 and the need therefore to make assessments that give real consideration to accountability.
  • Avoidance: has the trustee given real consideration to which identified conflict types should be avoided and why? Is this determination aligned to the trustee’s risk appetite and tolerances? Are adequate and appropriate controls in place (for instance blackout periods when switching is prohibited for directors, executives, or employees) and are they operating effectively to ensure avoidance is maintained?
  • Prudent management: has the trustee determined its policy for the treatment of identified conflicts? Should restrictions be imposed on directors, executives, or employees such as a special permissions process for switching that provides case by case consideration and transparency when dealing with their personal super interests (not dissimilar to the personal account trading policies of listed entities)?

Proper maintenance by trustees of the register of relevant duties, and the register of relevant interests, and the conflicts register up to date should trigger regular consideration of the conflict management framework. This is a practical way for the trustee to keep oversight of key areas of conflict risk (for example through the risk and compliance function).

Without an effective conflicts management framework, trustees are likely to face broader governance issues. One of the key themes coming out of the Financial Services Royal Commission in 2019 was that financial services entities needed to take proper steps to assess their governance arrangements, identify problems, deal with them, and determine the effectiveness of changes made as a result. If it was not attended to in 2019 it is certainly now overdue.


1Vickovich, Aleks. “Why this shocking market volatility is totally normal “Australian Financial Review, June 12, 2020

2The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry

3Australian Securities and Investment Commission. “21-282MR Surveillance of investment switching by super fund executives identifies concerns with trustees’ conflicts arrangements.” Media release, October 27, 2021. 

4Commonwealth. Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Final Report (2019) vol 1, 28.

5Australian Prudential Regulation Authority, Information Paper: Findings from APRA’s superannuation thematic reviews. 26 October 2021, Chapter 4. Web. 23 November 2021.

6Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, 377

More about the authors

​Sarah Russo

​Sarah Russo

Partner, Audit & Assurance

Sarah is a partner in Deloitte's Brisbane office in the Governance, Regulation and Conduct practice. Sarah is a highly qualified and experienced risk, assurance, regulatory and governance professional, having worked as a financial services lawyer, risk manager and with both APRA and ASIC. Sarah works predominantly with financial services clients assisting with governance, regulation and conduct matters including BEAR/FAR implementation, Design and Distribution Obligations, regulatory reviews and change programs, remediation, breach reviews and internal audit programs.

Deborah Latimer

Deborah Latimer

Partner, Audit & Assurance

Deborah is a Partner in our Governance, Regulation and Conduct Practice. She is a lawyer and has over 25 years’ experience within the financial services sector in Australia including regulatory, industry (in-house) and consulting experience. Deborah is a Fellow of the Governance Institute of Australia (FGIA) and of the GRC Institute (FGRCI), and a Graduate of the Australian Institute of Company Directors (GAICD). From a sector perspective Deb has deep experience and expertise in Wealth Management and her focus areas of practice are superannuation, insurance, and managed funds.