Financial regulator seeks to disqualify IOOF directors and top executives
7th December 2018

The financial regulator is seeking to disqualify the directors and senior executives of one of Australia’s biggest wealth managers, IOOF Investment Management, for failing to act in the best interests of superannuation members.

The startling move on Friday – which prompted the firm’s shares to crash 36% – comes after the IOOF managing director, Chris Kelaher, gave shocking evidence to the banking royal commission in August about its treatment of super members.

At one point, Kelaher defended IOOF’s decision to compensate investors in a cash management trust, using their own money, for a mistake IOOF had made.

In its closing submissions, the royal commission argued that IOOF had put its own interests above the interests of its super members, and that Kelaher “appeared to lack insight” into “why the conduct of IOOF was problematic” and “the fundamental obligations of a trustee and the directors of a trustee”.

The Australian Prudential Regulation Authority (Apra) said it had tried to resolve its concerns with IOOF over years, stretching back to 2015, but stronger action was now necessary.

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It has started disqualification proceedings in the federal court against five individuals: IOOF’s managing director Chris Kelaher, chairperson George Venardos, chief financial officer David Coulter, general manager (legal, risk and compliance) Paul Vine and general counsel Gary Riordan.

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

The Apra deputy chair, Helen Rowell, said: “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.

“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 Superannuation Industry (Supervision) Act 1993 and at law, and a lack of contrition in relation to the breaches of the SIS Act identified by Apra,” she said.

The regulator is also seeking to impose additional licence conditions and issue directions to Apra-regulated entities in the IOOF group.

It 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).

It has given the company 14 days to respond to the show cause notice.

IOOF says Apra’s allegations are “misconceived” and it is “disappointed” the regulator has taken this step. It says it will vigorously defend the proceedings.

“IOOF is disappointed that Apra seeks to impose licence conditions, commenced the proceedings and issued the show cause notice,” the company said.

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

“IOOF will continue to actively progress the agreed initiatives and will further consider the allegations raised by Apra. However, IOOF believes that these allegations are misconceived and it and its executives intend to vigorously defend the proceedings.”

IOOF shares were down 36.6% at 2pm on Friday at $4.55.

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