APRA takes action against IOOF

APRA is seeking to impose license conditions on IOOF and disqualify several of the firm's executive leaders.

In a media release this morning, APRA said it had commenced proceedings in the Federal Court of Australia. It seeks to disqualify five individuals, including managing director Chris Kelaher and chair George Venardos.

IOOF Investment Management Limited (IIML), Australian Executor Trustees (AET) and IOOF have 14 days to respond to a show cause notice issued by APRA. It declares the regulator intends to direct IOOF Investment Management Limited (IIML) to comply with its RSE licence and impose additional conditions on the licences of IIML, Australian Executor Trustees and IOOF.

The regulator said it was seeking to achieve significant changes to the identification and management of conflicts of interest by IIML, AET and IOOF. According to APRA, the action is based on concerns it raised in 2015 relating to IOOF and its entities' organisational structure, governance and conflicts management frameworks.

It also noted an independent report issued by big-four accounting firm EY which provided a "reasonable basis" to conclude IIML had breached section 52 of the SIS Act and prudential standards SPS 520 and 521, which relate to conflicts of interest.

APRA said it would seek to disqualify five individuals that were at times responsible individuals for IIML and Questor Financial Services. In addition to Kelaher and Venardos, APRA's court action extends to chief financial officer David Coulter, general manager of legal, risk and compliance Paul Vine and general counsel Gary Riordan.

IOOF has released a statement to the ASX, saying it believes the allegations are misconceived, and the business and its executives "intend to vigorously defend the proceedings."

IOOF also said it was disappointed with APRA's actions, claiming it had already been working closely with the regulator to resolve these issues, including the implementation of "various agreed initiatives" which it said it outlined at its recent AGM.

"The historical matters the subject of the proceedings were disclosed to APRA a number of years ago. IOOF has already addressed or is addressing them, and it has been constructively working with APRA to this end," IOOF said.

"The matters concerning the licence conditions largely cover initiatives that are already in progress, or have been completed, in consultation with APRA."

IOOF said it would continue to actively progress the agreed initiatives and would further consider the allegations raised by APRA.

After seeking to solve the issues over several years, APRA chair Helen Rowell said the regulator considered it necessary to take stronger action against IOOF.

"APRA's efforts to resolve its concerns with IOOF have been frustrated by a disappointing level of acceptance and responsiveness to the issues raised by APRA, which is not the behaviour we expect from an APRA-regulated entity," Rowell said.

"The actions we are now taking are aimed at achieving enduring change to ensure that the trustees of the superannuation funds operated by IOOF fully meet their obligation to put the interests of members ahead of all other interests.

"Furthermore, the individuals included in the proceedings have shown a lack of understanding of their personal and trustee obligations under the SIS Act and at law, and a lack of contrition in relation to the breaches of the SIS Act identified by APRA."

IOOF executives dismissed the conflict of interest issues at the Royal Commission earlier this year, with IOOF managing director of distribution Mark Oliver telling counsel assisting Michael Hodge that issues raised by APRA in 2016 were not "material".

The Commission heard IOOF left some superannuation members in expensive legacy products despite board members recognising conflicts of interest existed.

The news could also potentially affect IOOF's acquisition of ANZ's OnePath pension and investments business. In October IOOF said it had finalised the "substantial economic completion" of the pensions and investments business.

But in an announcement to the ASX shortly after the news broke, ANZ's deputy chief executive Alexis George said the bank would seek urgent information from APRA and IOOF and assess the various options available to it.

ANZ clarified it was still working towards separating OnePath's life insurance business from its pensions and investments arm, and the planned sale of the life arm to Zurich would not be affected.

"Given the significance of APRA's action, we will assess the various options available to us while we seek urgent information from both IOOF and APRA," George said.

"The work to separate pensions and investments from our life insurance business continues. There is a framework available to complete the Zurich transaction that does not involve IOOF."

Separately, IOOF recently sold its corporate trust business to Sargon Capital. At the time of the sale, Kelaher said corporate trust services sat outside of IOOF's wealth focus.

"The provision of corporate trust services to the financial services industry is a specialist area that sits outside IOOF's advice-lead wealth management focus and is a stronger strategic fit with Sargon," he said.

After closing at $7.17 yesterday, IOOF's share price suffered a drop of around 33% by 12:40pm, to $4.74.

Story last updated at 1:03pm

Read more: IOOFAPRAinvestmentsuperannuationChris KelaherFederal CourtGeorge VenardosHelen Rowell
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