IOOF plunges $800m as APRA moves to disqualify its top executives
Australia’s financial regulator has taken action against superannuation giant IOOF in the Federal Court and is trying to disqualify its top executives from managing people’s retirement savings.
- IOOF paid compensation to its superannuation members out their own retirement savings
- APRA accused IOOF of breaching its duty to act in their members’ best interests
- The company says its compensation scheme meets the “pub test”
Its managing director Chris Kelaher, along with four senior executives, failed to act in the best interests of superannuation members, the Australian Prudential Regulation Authority (APRA) alleges.
This led to IOOF’s share price plunging 33.5 per cent to $4.77 at 12:25pm (AEDT), its lowest value in 18 years.
In dollar terms, more than $800 million was wiped off the company’s market value in just a few hours.
It was another high-profile hit to the sector in the wake of the banking royal commission.
“IOOF” stands for the Independent Order of Odd Fellows and is one of Australia’s largest publicly-listed companies, with a market value of $1.7 billion.
It also has about 500,000 customers and manages $126 billion in members’ funds.
APRA said there was a “reasonable basis” to conclude the IOOF — along with its licensees IIML and Questor Financial Services — breached the Superannuation Industry Supervision (SIS) Act and failed to meet prudential standards.
The commission heard in August that IOOF made an accounting error and sought to compensate its members for that mistake.
But instead of dipping into its own corporate resources, IOOF took money out of the superannuation funds it managed.
This led to Michael Hodge QC, counsel assisting the commission, to accuse the company of using members’ money to compensate themselves.
He also accused IOOF of breaching its duties as a superannuation trustee — duties to put members’ interests above all else, even profit.
IOOF said its compensation scheme met the “pub test”, in part because it received no complaints from affected super fund members:
HODGE: “You say that at no time has Questor received any demands or complaints?”
HODGE: “Can I suggest it would be impossible for members to make a demand or a complaint because they didn’t know what Questor was doing.”
‘Disappointing’ attempts at remediation
APRA is also seeking to disqualify IOOF’s chairperson George Venardos, chief financial officer David Coulter, company secretary Paul Vine, and general counsel Gary Riordan.
If the action is successful, they will not be able to continue in their roles, as they would be prohibited from “being or acting as a responsible person of a trustee of a superannuation entity”.
Furthermore, it wants to impose additional restrictions on the licences of IOOF, along with its related entities IIML and Questor.
APRA confirmed that IOOF had been in its crosshairs for some time.
The regulator attempted to work with IOOF for several years but “considered it was necessary to take stronger action after concluding the company was not making adequate progress”, said APRA deputy chair Helen Rowell.
Ms Rowell said APRA’s attempts were “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”.
In response to the accusations, IOOF said it was “disappointed” with APRA, and will “vigorously” defend the case.
“IOOF has been working cooperative with APRA to actively implement various agreed initiatives, which were most recently outlined at the 2018 Annual General Meeting,” the company said in a statement.
“The historical matters subject of the proceedings were disclosed to APRA a number of years ago.
“IOOF has already addressed or is addressing them, and it has been constructively working with APRA to this end.”
There is a risk of the court action derailing ANZ’s attempt to sell its financial planning business to IOOF.
ANZ agreed to sell its OnePath Pensions and Investments businesses to IOOF for just $975 million in October 2017 — as it sought to exit the wealth management business like the other major banks.
“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,” said Alexis George, ANZ’s deputy chief executive.