Application for a Modification Declaration SIS Regulation 1.03(1)

Phillip Sweeney made this Freedom of Information request to Australian Prudential Regulation Authority

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Dear Australian Prudential Regulation Authority,

APRA has provided the following statistics about three superannuation fund that were established as “not-for-profit” corporate superannuation funds that required a trustee board structure of “equal representation required by legislation" in a document titled “Statistics – Superannuation Fund-level Rates of Return – June 2013”:

Worsley Alumina Superannuation Fund {Ranked 3rd out of 153 funds – 8.0% 10 year-year average rate of return}

National Australia Bank Group Superannuation Fund A {Ranked 11th out of 153 funds– 7.3% 10-year average rate of return}

BHP Billiton Superannuation Fund {Ranked 15th out of 153 funds– 7.2% 10-year average rate of return}

APRA notes in its Prudential Practice Guide: SPG 227 – Successor Fund Transfers and Wind-ups on at [15] on page 7:

“Under SIS Regulation 1.03(1), an RSE can only be considered to be a successor fund if:

(a) The receiving RSE confers on the member the equivalent right to those rights, in respect of the member’s benefits, the member had in the transferring RSE, and
(b) Before the transfer, the receiving RSE licensee has agreed with the transferring RSE Licence that the receiving RSE will confer on the member rights equivalent to the rights, in respect of the member’s benefits, the member had under the transferring RSE.”

A very important right, in respect of member benefits, is the right to have one’s retirement benefit administered by a trustee that complies with the law, including the requirement that an employer-sponsored superannuation fund, scheme or trust have a trustee with a Board structure of “equal representation as required by legislation" {namely Section 93(4) of the SIS Act}

Compliance with the law cannot be called a "feature".

Having member-elected directors is a protection against a sponsoring-employer who might seek to abuse the employees’ retirement savings in a manner similar to how Robert Maxwell did with the retirement savings of the employees of the Mirror Newspaper Group before the SIS Act was enacted in Australia.

The three funds listed above once had trustee who complied with Section 93(4) of the SIS Act.

APRA notes at [6] in SPG 227 on page 6:

“Under the SIS Act, an RSE licensee has a general obligation to act in the best interest of the beneficiaries at all times.”

APRA then notes at [12] on page 7:

“APRA expects that an RSE licensee would have clearly documented reasons for deciding to undertake an SFT, including the basis for concluding that the decision is in the best interest of the beneficiaries as a whole.

APRA then emphasises at [28] in SPG 227 on page 10:

“APRA expects an RSE licensee would be able to demonstrate that a decision to undertake an SFT is the result of a rigorous decision-making process and that the decision has been formally documented. A decision to undertake an SFT would ordinarily be documented in the minutes of the meeting where the decision was made. This would include an outline of the reasons for the SFT and why the SFT is considered to be in the best interest of the beneficiaries and would be accompanied by any documentation supporting the decision”

In 2013 APRA ranked the “for-profit” The Universal Superannuation Scheme at 89th out of 153 funds (with a 10-year average rate of return 5.4% which is some 2.1% less than the average of the three “not-for-profit” funds listed above).

Over the next two years a plan was developed by Andrew Hagger, the former NAB executive in charge of NAB Wealth, to amalgamate the three “not-for-profit” funds listed above with the larger “for-profit” The Universal Superannuation Scheme to form the MLC Super Fund with NULIS Nominees (Australia) Ltd as the trustee.

In the judgment handed down on the 11 September 2020 {ASIC v NULIS and MLC Nominees [2020] FCA 1306} the Federal Court found NULIS guilty of:

- Failing to all things necessary to ensure that the financial services covered by its Australian Financial Services Licence Number 236465 were provided efficiently, honestly and fairly, and thereby contravened s 912A(1)(a) of the Corporations Act 2001;
- Since 1 July 2016, engaging in conduct in relation to financial services that was misleading or deceptive or was likely to mislead or deceive and thereby contravened s 1041H of the Corporations Act 2001 and s 12DA of the ASIC Act 2001.

This judgement as well as the sudden resignation of Andrew Hagger after he was recalled before the Hayne Royal Commission throws a spotlight on the probity of the purported fund amalgamation that purportedly occurred on 1 July 2016.

In the case of the National Australia Bank Group Superannuation Fund A the Trust Deed as lodged with APRA to obtain fund Registration number R1005103 {28 April 2006} - Rule 6.1 places a fetter on the amalgamation of this fund. National Australia Bank Group Superannuation Fund A can only be amalgamated with another fund if and only if National Australia Bank Ltd merges with another bank. This merger of banks has not happened.

APRA notes at [27]in RPG 227 on page 10:

“Prior to contemplating an SFT, a transferring RSE licensee would ordinarily confirm that an RSE’s governing rules provide it with the power to transfer members; benefits to a successor fund. Generally, this power is conferred on a RSE licensee by the RSE’s trust deed.”

If the trustee is unsure if it has such a power, the trustee should seek judicial advice {refer to Westpac Securities Administration Ltd v Cooper [2016] SASC 122}.

The trustee of the three employer-sponsored funds, Transferor Funds, on 30 June 2016 was PFS Nominees Pty Ltd which had Nicole Smith as the Chairman. Nicole Smith also featured at the Hayne Royal Commission.

Nicole Smith was also the Chairman of Transferee Fund, NULIS Nominees (Australia) Ltd on 30 June 2016.

All the other Directors were also the same.

APRA notes at [41] on page 13:

“Where an SFT is taking place between two RSE’s with the same RSE licence, an RSE licensee may be considered unable to contract with itself. i.e. the RSE licensee cannot legally agree with itself that the receiving RSE will confer on the members’ equivalent rights the members had under the original RSE. APRA recommends that an RSE licensee contemplating such an FST applies to APRA for a modification declaration concerning r.103(1) of the SIS Regulations, as it applies to r. 6.29 of the SIS Regulations, to facilitate the RSE Licensee’s ‘equivalent rights’ agreement in respect of the SFT.

In a letter sent to all trustee dated 28 February 2011 titled “Operational and governance risks issues to consider when implementing change” signed by Greg Brunner – APRA GM – Supervisory Support Division, the following is stated:

“Where a successor fund transfer is taking place between two superannuation funds with the same trustee, that Trustee needs to apply to APRA for a modification declaration to facilitate the required equivalent rights signoff”.

Where there are two corporate trustees who have the same Chairman and the same Directors, the situation is analogous to the situation outlined by Greg Brunner in his letter to all trustees.

Such corporate trustees cannot operate with “independent minds” when dealing with each other.

The documents I seek are:

(i) A copy of the application letter to APRA for a “modification declaration” as set out in the letter to all trustees by Greg Brunner signed by Nicole Smith (or other Directors) of PFS Nominees Pty Ltd {Transferor Trustee of the three “not-for-profit” funds} and NULIS Nominees (Australia) Ltd {Transferee Trustee} of the “for-profit” MLC Super Fund;

(ii) A copy of the documented reasons that PFS Nominees Pty Ltd provided APRA as to why transferring members of National Australia Bank Group Superannuation Fund A to another fund was in their “best interests” and not in breach of the governing rules of that fund;

(iii) A copy of the documented reasons that PFS Nominees Pty Ltd provided APRA as to why transferring members of BHP Billiton Superannuation Fund to another fund was in their “best interests” and not in breach of the governing rules of that fund;

(iv) A copy of the documented reasons that PFS Nominees Pty Ltd provided APRA as to why transferring members of Worsley Alumina Superannuation Fund to another fund was in their “best interests” and not in breach of the governing rules of that fund.

Yours faithfully,

Phillip Sweeney

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Dear Mr Sweeney,

I acknowledge receipt of your FOI request dated 4 October 2020. We are
processing your request and will respond soon.

Kind regards,

FOI OFFICER

T 02 9210 3000 | E [1][APRA request email]

AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
1 Martin Place (Level 12), Sydney, NSW 2000
GPO Box 9836, Sydney, NSW 2001
T 02 9210 3000 | W [2]www.apra.gov.au

[3]Title: Australian Coat of Arms and APRA logo

-----Original Message-----
From: Phillip Sweeney <[FOI #6777 email]>
Sent: Sunday, 4 October 2020 10:58 AM
To: Freedom of Information <[email address]>
Subject: Freedom of Information request - Application for a Modification
Declaration SIS Regulation 1.03(1)

Dear Australian Prudential Regulation Authority,

APRA has provided the following statistics about three superannuation
fund that were established as “not-for-profit” corporate superannuation
funds that required a trustee board structure of “equal representation
required by legislation" in a document titled “Statistics – Superannuation
Fund-level Rates of Return – June 2013”:

Worsley Alumina Superannuation Fund {Ranked 3rd out of 153 funds – 8.0% 10
year-year average rate of return}

National Australia Bank Group Superannuation Fund A {Ranked 11th out of
153 funds– 7.3% 10-year average rate of return}

BHP Billiton Superannuation Fund {Ranked 15th out of 153 funds– 7.2%
10-year average rate of return}

APRA notes in its Prudential Practice Guide: SPG 227 – Successor Fund
Transfers and Wind-ups on at [15] on page 7:

“Under SIS Regulation 1.03(1), an RSE can only be considered to be a
successor fund if:

(a) The receiving RSE confers on the member the equivalent right to
those rights, in respect of the member’s benefits, the member had in the
transferring RSE, and

(b) Before the transfer, the receiving RSE licensee has agreed with
the transferring RSE Licence that the receiving RSE will confer on the
member rights equivalent to the rights, in respect of the member’s
benefits, the member had under the transferring RSE.”

A very important right, in respect of member benefits, is the right to
have one’s retirement benefit administered by a trustee that complies with
the law, including the requirement that an employer-sponsored
superannuation fund, scheme or trust have a trustee with a Board structure
of “equal representation as required by legislation" {namely Section 93(4)
of the SIS Act}

Compliance with the law cannot be called a "feature".

Having member-elected directors is a protection against a
sponsoring-employer who might seek to abuse the employees’ retirement
savings in a manner similar to how Robert Maxwell did with the retirement
savings of the employees of the Mirror Newspaper Group before the SIS Act
was enacted in Australia.

The three funds listed above once had trustee who complied with Section
93(4) of the SIS Act.

APRA notes at [6] in SPG 227 on page 6:

“Under the SIS Act, an RSE licensee has a general obligation to act in the
best interest of the beneficiaries at all times.”

APRA then notes at [12] on page 7:

“APRA expects that an RSE licensee would have clearly documented reasons
for deciding to undertake an SFT, including the basis for concluding that
the decision is in the best interest of the beneficiaries as a whole.

APRA then emphasises at [28] in SPG 227 on page 10:

“APRA expects an RSE licensee would be able to demonstrate that a decision
to undertake an SFT is the result of a rigorous decision-making process
and that the decision has been formally documented. A decision to
undertake an SFT would ordinarily be documented in the minutes of the
meeting where the decision was made. This would include an outline of the
reasons for the SFT and why the SFT is considered to be in the best
interest of the beneficiaries and would be accompanied by any
documentation supporting the decision”

In 2013 APRA ranked the “for-profit” The Universal Superannuation Scheme
at 89th out of 153 funds (with a 10-year average rate of return 5.4% which
is some 2.1% less than the average of the three “not-for-profit” funds
listed above).

Over the next two years a plan was developed by Andrew Hagger, the former
NAB executive in charge of NAB Wealth, to amalgamate the three
“not-for-profit” funds listed above with the larger “for-profit” The
Universal Superannuation Scheme to form the MLC Super Fund with NULIS
Nominees (Australia) Ltd as the trustee.

In the judgment handed down on the 11 September 2020 {ASIC v NULIS and MLC
Nominees [2020] FCA 1306} the Federal Court found NULIS guilty of:

- Since 1 July 2016, engaging in conduct in relation to
financial services that was misleading or deceptive or was likely to
mislead or deceive and thereby contravened s 1041H of the Corporations Act
2001 and s 12DA of the ASIC Act 2001.

This judgement as well as the sudden resignation of Andrew Hagger after he
was recalled before the Hayne Royal Commission throws a spotlight on the
probity of the purported fund amalgamation that purportedly occurred on 1
July 2016.

In the case of the National Australia Bank Group Superannuation Fund A the
Trust Deed as lodged with APRA to obtain fund Registration number R1005103
{28 April 2006} - Rule 6.1 places a fetter on the amalgamation of this
fund. National Australia Bank Group Superannuation Fund A can only be
amalgamated with another fund if and only if National Australia Bank Ltd
merges with another bank. This merger of banks has not happened.

APRA notes at [27]in RPG 227 on page 10:

“Prior to contemplating an SFT, a transferring RSE licensee would
ordinarily confirm that an RSE’s governing rules provide it with the power
to transfer members; benefits to a successor fund. Generally, this power
is conferred on a RSE licensee by the RSE’s trust deed.”

If the trustee is unsure if it has such a power, the trustee should seek
judicial advice {refer to Westpac Securities Administration Ltd v Cooper
[2016] SASC 122}.

The trustee of the three employer-sponsored funds, Transferor Funds, on 30
June 2016 was PFS Nominees Pty Ltd which had Nicole Smith as the
Chairman. Nicole Smith also featured at the Hayne Royal Commission.

Nicole Smith was also the Chairman of Transferee Fund, NULIS Nominees
(Australia) Ltd on 30 June 2016.

All the other Directors were also the same.

APRA notes at [41] on page 13:

“Where an SFT is taking place between two RSE’s with the same RSE licence,
an RSE licensee may be considered unable to contract with itself. i.e. the
RSE licensee cannot legally agree with itself that the receiving RSE will
confer on the members’ equivalent rights the members had under the
original RSE. APRA recommends that an RSE licensee contemplating such an
FST applies to APRA for a modification declaration concerning r.103(1) of
the SIS Regulations, as it applies to r. 6.29 of the SIS Regulations, to
facilitate the RSE Licensee’s ‘equivalent rights’ agreement in respect of
the SFT.

In a letter sent to all trustee dated 28 February 2011 titled “Operational
and governance risks issues to consider when implementing change” signed
by Greg Brunner – APRA GM – Supervisory Support Division, the following is
stated:

“Where a successor fund transfer is taking place between two
superannuation funds with the same trustee, that Trustee needs to apply to
APRA for a modification declaration to facilitate the required equivalent
rights signoff”.

Where there are two corporate trustees who have the same Chairman and the
same Directors, the situation is analogous to the situation outlined by
Greg Brunner in his letter to all trustees.

Such corporate trustees cannot operate with “independent minds” when
dealing with each other.

The documents I seek are:

(i) A copy of the application letter to APRA for a “modification
declaration” as set out in the letter to all trustees by Greg Brunner
signed by Nicole Smith (or other Directors) of PFS Nominees Pty Ltd
{Transferor Trustee of the three “not-for-profit” funds} and NULIS
Nominees (Australia) Ltd {Transferee Trustee} of the “for-profit” MLC
Super Fund;

(ii) A copy of the documented reasons that PFS Nominees Pty Ltd
provided APRA as to why transferring members of National Australia Bank
Group Superannuation Fund A to another fund was in their “best interests”
and not in breach of the governing rules of that fund;

(iii) A copy of the documented reasons that PFS Nominees Pty Ltd
provided APRA as to why transferring members of BHP Billiton
Superannuation Fund to another fund was in their “best interests” and not
in breach of the governing rules of that fund;

(iv) A copy of the documented reasons that PFS Nominees Pty Ltd
provided APRA as to why transferring members of Worsley Alumina
Superannuation Fund to another fund was in their “best interests” and not
in breach of the governing rules of that fund.

Yours faithfully,

Phillip Sweeney

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Dear Mr Sweeney,

APRA seeks your agreement to extend the timeframe by 20 days to process
the below request under s 15AA(a) of the FOI Act. APRA is due to make a
decision on your request by 3 November 2020 but requires an extension of
time to undertake further consultation and would appreciate your agreement
to extend the time for processing it. Should you agree to the requested 20
day extension, APRA will be required to make a decision on your request by
23 November 2020.

Please advise in writing if you consent to this extension of time.