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APRA takes action against IOOF for failing to act in best interests of superannuation members

Thursday 6 December 2018

The Australian Prudential Regulation Authority (APRA) has today announced a number of actions against IOOF entities, directors and executives for failing to act in the best interests of superannuation members.

APRA has commenced disqualification proceedings and is seeking to impose additional licence conditions and issue directions to APRA-regulated entities in the IOOF group.
 
APRA has issued a show cause notice setting out APRA’s intention to direct IOOF Investment Management Limited (IIML) to comply with its Registrable Superannuation Entity (RSE) Licence and impose additional conditions on the licenses of IIML, Australian Executor Trustees Limited (AET) and IOOF Ltd (IL). These entities have 14 days to respond to this notice.
The proposed conditions and directions to comply with conditions seek to achieve significant changes to the identification and management of conflicts of interest by IIML, AET and IL and facilitate APRA’s ability to take further enforcement action should this not occur. The proposed additional conditions on the licences of IIML, AET and IL are based on issues and concerns raised by APRA since 2015 relating to the entities’ organisational structure, governance and conflicts management frameworks, and require the entities to address these within specified timeframes. The proposed directions for IIML relate to an independent report issued by Ernst & Young, the findings of which provide a reasonable basis to conclude that IIML has breached section 52 of the Superannuation Industry (Supervision) Act 1993 (SIS Act), Prudential Standard SPS 520: Fit and Proper and Prudential Standard SPS 521: Conflicts of Interest.
APRA has also commenced proceedings in the Federal Court of Australia to seek the disqualification of five individuals that, at relevant times, were responsible persons of IIML and Questor Financial Services Limited (Questor). The proceedings also seek a court declaration that IIML and Questor (which at the material times were RSE Licensees owned by IOOF Holdings Limited) breached the SIS Act.
The individuals included in the disqualification proceedings are Managing Director Chris Kelaher, Chairperson George Venardos, Chief Financial Officer David Coulter, General Manager – Legal, Risk and Compliance and Company Secretary Paul Vine, and General Counsel Gary Riordan.

The Concise Statement seeks disqualification orders and declarations in relation to breaches of sections 52 and 55 of the SIS Act and Prudential Standards, and associated conduct. As outlined in the Concise Statement, APRA considers that IIML, Questor and the relevant individuals did not appropriately acknowledge and address issues concerning conflicts of interest raised by APRA from 2015 to date. In particular, APRA identified that on three separate occasions in 2015, Questor and IIML contravened the SIS Act by deciding to differentially compensate superannuation beneficiaries and other non-superannuation investors for losses caused by Questor, IIML or their service providers, with superannuation beneficiaries being compensated from their own reserve funds rather than the trustees’ own funds or third-party compensation.

If successful, the disqualification proceedings would prohibit the above individuals from being or acting as a responsible person of a trustee of a superannuation entity.

APRA Deputy Chair Helen Rowell said APRA had sought to resolve its concerns with IOOF over several years but considered it was necessary to take stronger action after concluding the company was not making adequate progress, or likely to do so in an acceptable period of time.

“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,” Mrs 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.”

The Concise Statement and Show Cause Notice are linked below:

 

The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding $6 trillion in assets for Australian depositors, policyholders and superannuation fund members.