In a move that has but a put the super industry and corporate Australia on notice, last Friday, APRA announced it had launched proceedings to disqualify five IOOF leaders from being superannuation trustees. APRA has alleged that Chief Executive Chris Kelaher, chairman George Venardos, chief financial officer David Coulter and two other executives are not fit and proper people to run a super fund.
APRA deputy chairman Helen Rowell said in a statement that it had sought to resolve its concerns with IOOF over several years but was taking 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.
Long Running Dispute Comes To A Head
APRA's action came after a long-running dispute with IOOF over its culture, structure and remediation of customers. IOOF’s structure has been an issue on APRA’s radar for years. APRA had been voicing its concerns about “a number and range of prudential matters” and “governance and transparency issues” including regarding its wholly-owned investment management arm, known as IIML, which was also a superannuation trustee. APRA had “legitimate concerns” about the structure of IIML - which took money out of superannuation customers who invested in its platform products and sent it back to the parent company.
These issues were made public at the Royal Commission in August and it appeared that there had been a breach of fiduciary duties; that were are conflicts of interest and systemic internal problems across the organisation.
Although it seemed as though IOOF were not overly concerned with the attention from APRA previously, just one week prior to the hearings, they dissolved a structure where IIML poses as both investment management arm and superannuation trustee. Far from admitting any guilt over the matter, IOOF MD Chris Kelaher said the move was not made in response to APRA’s concerns, but that it was just the case that it was “easier” to get the regulator off its back!
Board Meeting Minutes on Scraps of Paper
In another questionable act, when IOOF were asked to produce board meeting minutes to the RC, they handed over “hand written notes on scraps of paper – many of which were illegible”. When the assisting QC asked “Do you regard it as common practice in this day and age to take meeting minutes in handwriting,” Mr Kelaher responded: “It’s been our practice.” When asked who had written the notes, Kelaher responded “It looks like the handwriting of our company secretary. It looks like them,” Mr Kelaher said. “I’m not a handwriting expert”.
Consequences of Board Inaction
Following Kelaher’s performance, back in August, Adele Ferguson, writing in Fairfax, pondered “It will be interesting to see the fallout as the commission weighs up the evidence and testimony and determines the seriousness of the breaches of trustees’ duties.” Well, “interesting” it certainly turned out to be…
Along with the Federal Court action, APRA has issued show cause notices to IOOF that it will be placing conditions on a variety of licences owned by the group and that will mean it will have to ensure the boards of its superannuation funds are different to its group board. Imposing additional licence conditions on IOOF is likely to have huge consequences for the wealth manager.
The Market did what it does with spectacular effect, reacting to the proceedings by wiping off more of a third of the company’s value. Initially, IOOF shares were hammered in the wake of the news, with investors driving its share price down 36 per cent to a more-than-five-year low of $4.54. At the start of this year, IOOF shares were trading above $11. Today it is trading at $4.24
Morningstar have also placed listed financial services giant under review, in what it described as a "major hit" to the company's reputation
CEO and Chairman Step Down
Chris Kelaher and chairman George Venardos have now stepped down from their respective roles, and acting CEO and Allan Griffiths said the company would fight allegations that they were not fit and proper people to oversee the company's multi-billion-dollar superannuation arm. Griffiths said the board had been "shocked and a little bit astounded and taken aback" by the APRA action.
The development also places the sale of ANZ's wealth business to IOOF under more pressure, with the big four bank announcing on Friday it had options that did not include selling the pensions and investment business to IOOF. ANZ deputy chief executive Alexis George said "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”.
The market value wipeout of $900 million also resulted, perhaps predictably, in class action lawyers circling around IOOF in the wake of the APRA action, while the corporate regulator ASIC is understood to be pursuing its own investigation into the wealth company.
For IOOF at least, in their dealings with APRA, it seems there are consequences to kicking the can down the road. Other executives should take note.