Australia's banking regulator has warned there is no longer anywhere for poorly performing superannuation funds to hide, but says this is not necessarily aimed at smaller funds.
Australian Prudential Regulation Authority chair Wayne Byres has told a conference the royal commission into banking and the Productivity Commission's inquiry into superannuation in early 2019 set the industry on a new course.
Reforms since have been aimed at producing higher standards of trustee behaviour, driving out inefficiencies and establishing much greater transparency.
"It's fair to say that if you were designing the superannuation industry from scratch, you wouldn't give it the shape we have today," Mr Byres told the Trans-Tasman Business Circle on Thursday.
"In an industry where size matters, there's a long - and often underperforming - tail."
He said of the 145 APRA-regulated funds, 105 had less than $10 billion in funds under management, and 70 had less than $2 billion.
Collectively, those 105 small funds manage only 8.5 per cent of assets.
In contrast, 17 large funds each have more than $50 billion in funds under management, collectively accounting for more than 70 per cent of assets.
"This size difference matters," he said.
"It has real impacts on the outcomes delivered to members."
He said an APRA analysis this year demonstrated that trustees of the largest funds had the scale to reduce expenses and improve operating efficiency.
"Meanwhile, about half of the sub-$10 billion funds face sustainability challenges with declining net cash flows and accounts. It's hard to see how that is going to generate the best outcomes for their members," he said.
"In making this point, I want to be clear that APRA doesn't blindly adopt a 'big is good, small is bad' approach."
APRA executive director of superannuation Suzanne Smith told the conference in the nearly 10 years since APRA incorporated superannuation into the prudential framework, the number of regulated funds has fallen from about 330.
"We know of at least nine mergers that are either in progress or under serious consideration, so the number of trustees will continue to contract," she said.
"We have begun seeing partnerships between some of country's biggest and most successful funds, and even mergers that cross the barrier between the rival retail and industry sectors - something APRA welcomes."