The Australian Prudential Regulation Authority (APRA) has announced a number of actions against IOOF entities, directors and executives for failing to act in the best interests of superannuation members and breaching 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’s concerns relate to IOOF’s organisational structure, governance framework, conflicts management framework and delays in the implementation of an agreed Managed Action Plan.
In response, the Board of IOOF Holdings Ltd has announced that IOOF Managing Director, Christopher Kelaher and Chairman, George Venardos, have agreed to step aside from their respective positions effective immediately, pending resolution of proceedings brought by APRA.
Chief Financial Officer David Coulter, Company Secretary Paul Vine, and General Counsel Gary Riordan will remain in their positions, however, will have no responsibilities in relation to the management of the IOOF trustee companies and will have no engagement at all with APRA during this period
Disqualification proceedings
APRA has commenced Federal Court proceedings seeking disqualification orders and declarations in relation to breaches of sections 52 and 55 of the SIS Act and Prudential Standards, and associated conduct.
The proceedings seek the disqualification of five individuals that, at relevant times, were responsible persons of IOOF Investment Management Limited (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 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.
APRA identifies 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.
By failing to prevent or detect the breaches, APRA claims Questor and llML failed to exercise the degree of care, skill and diligence a prudent superannuation trustee would exercise as required by s52(2)(b) of the SIS Act.
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.
Show cause notice
APRA has also issued a show cause notice setting out APRA’s intention to direct 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). The 3 regulated entities are subsidiaries of IOOF Holdings Limited (IHL).
The proposed conditions relate to failures to adequately identify and manage conflicts of interest throughout the IOOF Group, and failures to comply with legislative requirements and prudential standards.
The notice is 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 APRA says 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.
