At the end of his last blog, David Haynes posed the question, when will innovation overtake regulatory compliance as the major driver of change in superannuation? His answer is that it will only happen when we can improve the relationship between the two.
Regulation should go hand in hand with innovation, and ideally mustn’t be separate or even in competing streams. The challenge for the industry and the Governments that regulate us is to get these two critical influencers into alignment, so that regulation actively supports the use of innovation. In this blog, I identify some potential actions that can be taken at both a high and at a more detailed level.
Momentum from the Financial System Inquiry has slowed
The Financial System Inquiry (FSI) made some useful recommendations on innovation. Relevant to superannuation, the FSI called for better use of data, digital identity solutions, better public/private collaboration, improved payment system regulation and rationalisation of legacy products.
We support the superannuation industry in progressing the progressing both big and small FSI initiatives as a priority. A good start could be with technological neutrality, leaving super funds free to adopt whatever technology is most appropriate to achieve the desired result. Lack of technological neutrality and new regulations that do not fully mesh between regulators – such as reporting and disclosure can add up to be a brake of technological change.
Specific and inconsistent legislative requirements to use specific channels for reporting, including paper remain. Paper….yes paper. These also continue to be a brake on technological advances.
We encourage the Government to begin an audit of these roadblocks, driven by a public commitment to the complete implementation of technological neutrality by 2017. The Government could also fast-track tasking the Productivity Commission with a review of access to data, another FSI recommendation.
There is great benefit to the community from the Government prioritising the issuing of roadmaps for progressing all further issues arising from the FSI.
The Innovation Statement missed superannuation
While the Government’s Innovation Statement was largely silent on super, the Government has clearly made innovation a high priority. The superannuation industry should engage with the Government about using innovation to improve the operation and efficiency of the super system.
A more efficient super system will result in super being easier and more hassle free for both employers and members. After all, SuperStream is a great example of innovation helping small business – all businesses – saving them money and making life easier.
The road to ecommerce and common data standards could be characterised as slow and difficult for most of the super industry, and there were lots of false starts. Lack of first mover advantage, indeed first mover disadvantage became a potential issue.
However, when the Government and especially the ATO got behind the program, it was able to be implemented for all employers and super funds. The financial and efficiency benefits are great – the benefits for employers alone are likely to be in the hundreds of millions a year.
The Government is using this success story as a springboard for introducing other technological change. Single Touch Payroll, online enrollment of new employees, and improved member identification are already on the table and under development. But SuperStream can also be used to innovate and streamline other sorts of transactions – in insurance and investments, and for custodial services, for example.
We look forward to the Government and the ATO commencing a consultation process with super funds and employers to coordinate and promote these initiatives, and to ensure they are structured to meet consumer and industry needs.
Removing the roadblocks to innovation
There is understandable regulator caution about the risks inherent in some technologies, such as cloud computing and other shared computing services. This however has to be balanced by a holistic appreciation of the opportunities that the cloud presents. I believe APRA’s cautionary guidelines could further be balanced by further guidance identifying the member benefits that may flow from implementation of innovative technologies.
It would be a great development if the next Federal Budget included provision for APRA to implement the previously announced but much delayed Data Dissemination Tool and improve the way in which APRA receives data – a new D2A.
The Government could also require APRA and the ATO to work more closely together to rationalise the provision and use of data. Current overlaps, inconsistencies and different perspectives have resulted in inefficiencies and additional costs to super funds that the Government should actively seek to reduce.
Provide a first-mover advantage
The other elephant in the room is the ongoing first-mover disadvantage associated with new technologies. Super funds are looking to improve member experience, improve members’ financial literacy and provide a better member experience – but a fund can move first in providing meaningful, innovative disclosure only to find their reward is having to dismantle the structure in order to meet new regulatory requirements.
This year may see the first $100 billion super fund. The opportunity for it and other large funds to harvest scale benefits for their members is enormous, and should be encouraged.
Executive Superannuation Policy Advisor, VIC