RICHARD GLUYAS

The Weekend Australian - - BUSINESS REVIEW - RICHARD GLUYAS

The old APRA has been in­ves­ti­gat­ing IOOF since 2015, but it’s the new APRA that got fed up yes­ter­day and went ther­monu­clear against the wealth man­ager.

This is the new reg­u­la­tory en­vi­ron­ment in the fi­nan­cial ser­vices in­dus­try.

De­lays, ob­fus­ca­tion and le­gal hair-split­ting will not be tol­er­ated, and the cau­tion that’s been part of the cul­ture of ASIC and APRA, in par­tic­u­lar, are from a by­gone era.

Royal com­mis­sioner Ken Hayne’s gal­vanis­ing lament in his in­terim re­port that ASIC rarely went to court to seek pub­lic de­nun­ci­a­tion and pun­ish­ment for mis­con­duct, and that APRA “never went to court”, was the main cat­a­lyst.

But don’t un­der­es­ti­mate the im­pact of the $700 mil­lion fine ex­tracted from Com­mon­wealth Bank for mul­ti­ple money laun­der­ing trans­gres­sions.

Aus­trac’s ac­tion in that case spoke a lot louder than weasel words from politi­cians about “tough cops on the beat”.

The same ap­proach can be ex­pected from APRA, which has been promis­ing for months that it has taken Hayne’s with­er­ing crit­i­cism on board.

The pru­den­tial reg­u­la­tor flayed IOOF para­graph by para­graph in its show cause no­tice, which was dis­patched on Thurs­day to the com­pany’s blue-chip law firm King & Wood Mallesons.

Dis­qual­i­fi­ca­tion pro­ceed­ings have been started against five in­di­vid­u­als. APRA is also seek­ing to im­pose ad­di­tional li­cence con­di­tions and is­sue direc­tions to APRA-reg­u­lated en­ti­ties (ARE) in the IOOF group.

The five tar­geted in­di­vid­u­als are manag­ing di­rec­tor Chris Ke­la­her, chair­man Ge­orge Ve­nar­dos, chief fi­nan­cial of­fi­cer David Coul­ter, gen­eral man­ager le­gal, risk and com­pli­ance Paul Vine and gen­eral coun­sel Gary Rior­dan.

IOOF said the al­le­ga­tions were mis­con­ceived, and its ex­ec­u­tives would “vig­or­ously” de­fend the pro­ceed­ings.

APRA’s core con­cern, for­mally iden­ti­fied in a De­cem­ber 21, 2015 let­ter, is that de­ci­sions were made at IOOF which ap­peared to favour the in­ter­ests of share­hold­ers over the ben­e­fi­cia­ries of su­per­an­nu­a­tion funds. In par­tic­u­lar, cus­tomers were com­pen­sated from their own re­serve funds rather than the trus­tees’ funds or third-party com­pen­sa­tion.

While two in­de­pen­dent di­rec­tors were ap­pointed to the ARE board in Jan­uary 2017, some of the IOOF di­rec­tors re­mained, in­clud­ing Ke­la­her and Ve­nar­dos.

The board had only re­cently moved to the re­quired ma­jor­ity of in­de­pen­dent di­rec­tors.

APRA also raised con­cerns about the ARE di­rec­tors’ in­ad­e­quate un­der­stand­ing of the con­flicts of in­ter­est in IOOF’s busi­ness model, and their fail­ure to iden­tify de­tails of con­flicts — or ac­tions taken to man­age the con­flicts — in the min­utes of board, com­mit­tee and other meet­ings.

The reg­u­la­tor re­quired IOOF to en­gage an in­de­pen­dent ex­pert to con­duct a re­view of its risk cul­ture and man­age­ment of con­flicts.

The sub­se­quent fi­nal re­port from Ernst and Young raised “nu­mer­ous is­sues and con­cerns”, ac­cord­ing to APRA.

On Septem­ber 4, 2018, the watch­dog set out a man­aged ac­tion plan (MAP) for IOOF, but al­leged that there had al­ready been de­lays.

The reg­u­la­tor said IOOF did not hold its first monthly meet­ing with APRA un­til Novem­ber 15, al­most two months af­ter agree­ing to im­ple­ment the MAP.

“The on­go­ing de­lay in progress on the MAP is un­ac­cept­able to APRA, par­tic­u­larly given that the con­cerns have been raised since at least 2015 and many of the spe­cific items in­cluded in the MAP have been raised since March 2018,” the show cause no­tice says.

“The con­cerns have not been ad­dressed to APRA’s sat­is­fac­tion for an un­ac­cept­able pe­riod and APRA is not sat­is­fied with the progress of the im­ple­men­ta­tion of the MAP to date.”

IOOF said it had been work­ing co-op­er­a­tively with APRA to im­ple­ment the agreed ini­tia­tives, and that the “his­tor­i­cal” mat­ters were dis­closed to the reg­u­la­tor a num­ber of years ago.

The com­pany said it had al­ready ad­dressed the is­sues, or was in the process of ad­dress­ing them.

It’s un­clear when the Fed­eral Court will hear the case.

Al­ready, though, IOOF has suf­fered a blow to its cred­i­bil­ity.

It’s ef­fec­tively at war with its reg­u­la­tor, and on that ba­sis alone it’s hard to see IOOF con­tin­u­ing in its cur­rent form.

IOOF said the al­le­ga­tions were mis­con­ceived, and its ex­ec­u­tives would ‘vig­or­ously’ de­fend the pro­ceed­ings

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