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A Wake-Up Call for Super Funds

Monday 30 April 2018

*This article was originally published in the GRC Professional:Financial Crime Edition 2018. To download a PDF copy of this article click hereTo download your edition of the magazine please log in to your member account.

by Eli Singer 

In 2016, AUSTRAC released its much-hyped report on the superannuation sector, detailing its money laundering and terrorism financing (ML/TF) risk assessment. AUSTRAC assessed the overall ML/TF risk as ‘Medium’ for APRA regulated funds. The conclusion of this report was damning:

The superannuation sector in Australia is faced with a serious and multifaceted criminal threat environment; the number of member accounts at the national level, make it an attractive and lucrative target for both opportunistic criminals and well-resourced organised crime groups.

Then in 2017, the Australian Criminal Intelligence Commission released a report on organised crime in Australia and, unsurprisingly, noted superannuation fraud as a hotspot, especially considering the Australian industry is worth over $2.3 trillion.

Up until 2016 / 2017, super funds had noticed an increase in financial crime activity and were already taking some preventative actions. However, many AML/CTF officers and fraud risk managers were still assessing financial crime risk as an overall ‘Low’ risk—after all, super funds are not dealing with cash transactions like banks, so the risk must be lower, right? It was this naïve and arguably backward thinking that caught the attention of ‘would-be’ criminals, with super funds reporting an increase in instances of identity theft, illegal early releases, and falsifying of documents, as well as cybercrime, over the last couple of years.

In the weeks and months following these published reports on financial crime within super, funds wasted no time in undertaking an end-to-end review of their AML/CTF frameworks, policies, procedures, and risk and control environments. The financial crime areas in the ‘big four’ audit and consultancy firms were in very high demand during 2017. That same year, super fund boards were seeking assurances from management that the trustee’s AML/CTF and fraud risks were being managed adequately, and that any gaps in the funds’ controls were identified and addressed.

In 2018, there will continue to be a focus on cyber security technology, with super funds now acknowledging more than ever the importance of being ‘one step ahead’ when it comes to preventing superannuation-related financial crime. Funds will continue to invest in preventative analytic capabilities to be able to identity criminal activity either before it happens or as it is occurring, through the use of real-time data matching analytics and similar technologies.

The big lesson for super funds? Not to become complacent when it comes to financial crime. Once a weakness in a fund’s security controls is found, that fund is then subject to ‘mass waves of attack’ from all fronts. No longer can super funds dismiss financial crime as simply ‘an issue for the banks’. The risk for super funds is real and very much present.

The good news? Super funds have finally woken up to this fact.

About the Author

Eli Singer is an experienced Compliance, Risk and Governance professional, with a strong compliance and risk management background across banking, superannuation, life insurance and financial advice. Eli has a genuine passion for driving a culture of compliance and ethics within organisations.