IOOF facing deadline to clean up super business

IOOF may commit a criminal offence if it doesn’t meet a new deadline to clean up its super business.

Acting IOOF CEO Renato Mota. Picture: Stuart McEvoy

Financial services group IOOF faces the prospect of committing a criminal offence if it does not meet a new deadline to clean up its superannuation business set by the prudential regulator.

In its first exercise of new powers granted following last year’s banking royal commission, the Australian Prudential Regulation Authority said it has directed two IOOF subsidiaries to set up an office supporting superannuation trustees by June 30.

IOOF shares, which have already been battered by the company’s bruising battle with APRA and a disastrous appearance at the royal commission, tumbled 7.1 per cent Wednesday to hit $5.37.

Failure to obey a direction from APRA is a criminal offence, punishable by a fine of up to $105,000 for a company, or $210,000 in total if both the IOOF subsidiaries targeted by the regulator, IOOF Investment Management and Australian Executor Trustees, are ultimately found guilty.

The new move comes amid continuing Federal Court action in which APRA is attempting to ban from the super industry former IOOF chief executive Chris Kelaher, former chairman and current director George Venardos, chief financial officer David Coulter, general manager of compliance Paul Vine and general counsel Gary Riordan.

It also comes as IOOF struggles to complete a takeover of ANZ’s OnePath business that would deliver to it about 700,000 superannuation customers, but which is stalled due to the company’s laundry list of regulatory woes.

Adding to IOOF’s pain, investment bank UBS Wednesday downgraded its stock to “sell”, with lead analyst Kieren Chidgey telling clients the market’s estimate that the OnePath deal was a 75 per cent chance to go ahead was “too high in our view”.

Mr Chidgey said IOOF’s funds under management and financial adviser numbers were more stable than those at AMP and the banks, which customers have been fleeing in favour of industry super funds.

“With already superior cost efficiency reducing the scope for offsets to revenue pressure, we believe IOOF’s platform earnings could compress 25 per cent over five years,” he said.

In December, at the same time as it launched legal action against the IOOF executives, APRA also imposed a raft of new licence conditions on the company that included the requirement to set up an office of the superannuation trustee by March 31.

These licence conditions were supposed to address long-standing concerns held by APRA over IOOF’s woeful governance of its super funds, which included trustee companies also acting as fund managers and the group’s habit of using customer money to remediate clients for mistakes made by the company.

However, IOOF failed to meet the March 31 deadline to have the office of the superannuation trustee, or OST, up and running.

APRA responded by hitting the company with a notice to show cause why it was not in breach of its financial services license.

The regulator said the show cause process was finished and it had now decided to hit IOOF with directions to comply.

“APRA’s response recognises the recent progress IOOF has made towards meeting the conditions, yet holds the IOOF entities accountable for the timely implementation of the conditions to ensure improvement to IOOF’s organisational structure, governance and conflicts management frameworks,” APRA said.

IOOF said that since it revealed the show cause notice to the market on April 26 it “has responded to APRA’s show cause notice and has continued to take steps to implement and maintain the OST within the operations of the group”.

“IOOF remains confident of meeting APRA’s deadline of the end of June 2019 for the implementation and maintenance of the OST,” the company said.