"The [current] arrangement poses the very real and ongoing risk that regulatory breaches ‘fall through the cracks’ as a result of divided responsibilities (with each regulator believing the other was, or should be, dealing with a matter), leading to poor outcomes for members."

It is clear that strategic conduct regulation with deterrence intent ... has generally appeared either largely ‘missing in action’.

Productivity Commission report

Regulators have taken insufficient action against super fund trustees, the report finds.

"It is clear that strategic conduct regulation with deterrence intent ... has generally appeared either largely ‘missing in action’ or been ‘too little too late’."

In December, APRA commenced disqualification proceedings against five directors of IOOF for breach of their duties as trustees. But even this is insufficient, the commissions finds.

"The ‘behind closed doors’ nature of APRA’s supervisory activities means that there is little potential for demonstration effects. Even if poor behaviour is curtailed at one fund, there is limited capacity for it to be discouraged at others."

The super industry is braced for greater scrutiny and regulatory action arising from the royal commission into misconduct in the finance sector, due to report by February 1.

The deputy chair of the Productivity Commission who oversaw this super industry inquiry, Karen Chester, has also recently been appointed as deputy chair at the Australian Securities and Investment Commission. In 2015, Ms Chester led a scathing review of ASIC's capabilities.

The Productivity Commision's report released on Thursday argues ASIC - not APRA - should take the lead in taking action against super trustees who fail to protect member funds.

"ASIC’s enforcement activities would generally be public, and focused on matters that would provide a strong demonstration effect to all trustees," the report finds.

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While APRA should continue its enforcement activities, its role would be more to oversee fund licensing and authorisation.

"APRA should monitor both system and fund performance and intervene when a fund’s performance is inconsistent with the best interests of members," the report finds.

The commission wants APRA to be required to report regularly on its efforts to force small super funds delivering poor performance to merge to take advantage of economies of scale.