6 December 2018
Domenic Gatto
Partner
King & Wood Mallesons
Level 50 Bourke Place
600 Bourke Street
Melbourne VIC 3000
Dear Mr Gatto
Potential imposition of additional conditions on licences and registration and
directions to comply with licence conditions
IOOF INVESTMENT MANAGEMENT LIMITED (IIML)
AUSTRALIAN EXECUTOR TRUSTEES LIMITED (AET)
IOOF LIMITED (IL)
1.
We confirm you act on behalf of
IIML, AET, and IL (together, for the purposes of this
letter, the
APRA Regulated Entities (AREs)) and can accept service of this letter. The
AREs are subsidiaries of IOOF Holdings Limited
(
IHL). IHL and its subsidiaries, both the
AREs and other non APRA-regulated entities, are referred to collectively as the ‘IOOF
Group’ for the purposes of this letter.
2.
APRA is considering imposing additional conditions on the RSE licence held by IIML,
AET and the registration held by IL. The potential conditions relate to failures to
adequately identify and manage conflicts of interest throughout the IOOF Group, and
failures to comply with legislative requirements and prudential standards.
3.
APRA is also considering issuing directions to IIML to comply with licence conditions, as
APRA has reasonable grounds to believe that IIML has breached a condition on its RSE
licence, namely the requirement to comply with the RSE licensee law as defined in
section 10 of the
Superannuation Industry (Supervision) Act 1993 (
SIS Act). APRA has
formed this view based on the breaches, or potential breaches, of the SIS Act and
relevant prudential standards identified by Ernst & Young (
EY) in their report dated 4
September 2018.
4.
This letter provides you with notice of the potential conditions and directions and an
opportunity to respond to APRA’s preliminary view on behalf of your client. If you want
to make submissions in response to APRA’s preliminary view in relation to the potential
conditions and directions, please do so within 14 days of the date of this letter, being on
or before 20 December 2018. If you do not provide a written response by 20 December
2018, APRA may proceed to make decisions without any further notice.
5.
A copy of the potential conditions are attached to this letter (Attachments A to C).
6.
A copy of the potential directions to comply is attached to this letter (Attachment D).
Relevant Documents
7.
A list of documents APRA has considered in reaching its preliminary view, and the
documents themselves, have been shared with you via SecureDoc.
Material Facts
APRA
8.
APRA has the functions and powers set out in the
Australian Prudential Regulation
Authority Act 1998 (Cth) (
APRA Act), the SIS Act and the
Life Insurance Act 1995 (
Life
Act).
9.
Pursuant to section 34F of the SIS Act, APRA is responsible for encouraging and
promoting the carrying out by registrable superannuation entity licensees (
RSE
licensees) of sound practices in relation to prudential matters. It is also responsible for
the evaluation of the effectiveness and carrying out of those practices. Pursuant to
section 34C of the SIS Act, APRA may make standards in relation to prudential matters
that must be complied with by all RSE licensees (
Prudential Standards).
The
Prudential Standards set out the minimum prudential requirements to be observed.
10. Section 29EA of the SIS Act gives APRA the power to impose additional conditions on
an RSE licence by giving the RSE licensee a notice setting out the additional conditions.
11. Section 29EB of the SIS Act gives APRA the power to direct an RSE licensee to comply
with a specified condition of its RSE licence by a specified time if APRA has reasonable
grounds to believe that the RSE licensee has breached the condition by giving the RSE
licensee a notice setting out the direction.
12. Pursuant to section 3 of the Life Act, the main objects of the Life Act are to protect the
interests of the owners and prospective owners of life insurance policies in a manner
consistent with the continued development of a viable, competitive and innovative life
insurance industry and to promote financial system stability in Australia. One of the
principal means adopted for the achievement of these objects is the supervision of life
companies by APRA.
13. Pursuant to section 230A of the Life Act, APRA may make standards in relation to
prudential matters that must be complied with by all life companies, registered non-
operating holding companies (
NOHCs) and subsidiaries.
The Prudential Standards set
out the minimum prudential requirements to be observed.
14. Section 22 of the Life Act gives APRA the power to impose additional conditions on the
registration of a company by giving the company a notice setting out the additional
conditions.
15. A copy of the relevant sections of the SIS Act and Life Act are attached to this letter
(Attachments 1 and 2)
IOOF
16. On 25 November 2005 IIML was granted a public offer entity RSE licence pursuant to
section 29D of the SIS Act. On 24 May 2010 additional conditions were imposed on
IIML’s licence under section 29EA of the SIS Act.
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17. On 12 May 2006 AET was granted a public offer RSE licence pursuant to section 29D
of the SIS Act.
18. Accordingly, IIML and AET are RSE licensees regulated by APRA under the SIS Act.
19. All RSE licensees must comply with the SIS Act and the relevant Prudential Standards.
20. IL was formerly known as IOOF of Victoria Friendly Society Ltd. APRA issued a
registration certificate under section 21(5) of the Life Act that took effect on 1 July 1999
for IOOF of Victoria Friendly Society Ltd (the ‘original registration certificate’).
21. On 6 April 2000, APRA revoked the original registration certificate and registered the
company as a Friendly Society in its new name, ‘IOOF Ltd’, with effect from 18
November 1999 pursuant to section 21(5) of the Life Act.
22. IL is regulated by APRA under the Life Act and must comply with the Life Act and the
relevant Prudential Standards.
23. IOOF Group Ltd is another entity which is a subsidiary of IHL and regulated by APRA
under the Life Act. It is a NOHC registered by APRA in 2014 with the intention of
restructuring the IOOF Group so that the AREs were subsidiaries of the NOHC. This
restructure never eventuated. At this time APRA is not considering imposing licence
conditions or issuing directions in relation to the NOHC.
Concerns
24. APRA has raised issues and concerns regarding the adequacy of the organisational
structure, governance and conflicts management frameworks of the AREs within the
IOOF Group. These concerns have been communicated by APRA to the AREs and IHL
on numerous occasions, including as set out in the correspondence attached to this
letter.
25. A summary of APRA’s concerns is set out below.
Organisational structure
26. Since at least 2015, APRA has raised concerns with the organisational structure of the
AREs. This structure has resulted in a lack of demonstrable focus on the individual
AREs, as well as issues relating to the identification and management of conflicts of
interest and duty.
27. Prior to January 2017, the IOOF Group operated under a group structure where all
directors sat on the parent and subsidiary Boards. This structure presented an inherent
conflict of interest, as the same individuals were responsible for making decisions in
respect of issues where the interests of the investors or members of the different entities
within the IOOF Group were likely to give rise to conflicts of interest or duty.
28. By letter dated 21 December 2015, APRA observed that decisions were made which
appeared to favour the interests of shareholders over the beneficiaries of
superannuation funds. For example, the decision in relation to the Pursuit and Sweep
breaches to compensate non-superannuation investors from the entity’s own funds,
whereas superannuation investors were compensated from the Operational Risk
Financial Reserve (see Attachment 3).
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29. In January 2017 two independent directors were appointed to the Board of the AREs
(Attachment 4). However, some of the directors on the IHL Board remained on the ARE
Board, including Chris Kelaher (Managing Director of IHL) and George Venardos (Chair
of IHL). The Board of the AREs have only recently moved to having a majority of
independent directors, as required by the APRA.
30. Both IIML and AET are considered by APRA to be superannuation dual regulated
entities (
SDREs), as they are also Responsible Entities (
REs) of a number of managed
investment schemes. This structure also presents an inherent conflict of interest, as the
directors of the Board of IIML make decisions on issues where the interests of IIML as
RE conflict with the interests of the superannuation members. For example, the Board
of IIML decided to add a certain product (for which IIML is RE) to the investment menu
of one of the superannuation funds for which IIML is the RSE licensee. IIML failed to
identify this conflict of interest and either avoid or appropriately manage the conflict (see
Attachment 5).
Governance Framework
31. Since at least 2015, APRA has raised concerns with the governance framework which
applies to the AREs including the:
a.
failure to formally document consideration of the optimal skills, structure and
composition of the Board;
b.
use of IHL group committees, rather than dedicated committees for each of the
AREs, as it results in insufficient consideration of individual ARE requirements;
and
c.
annual assessments of the Boards’ performance (as required by
Prudential
Standard SPS 510: Governance (
SPS 510) and
Prudential Standard CPS 510:
Governance (
CPS 510)) being conducted at the IHL Board level and therefore not
adequately addressing the objectives specific to each ARE (see Attachments 3
and 5).
Conflicts Management Framework
32. Since at least 2015, APRA has raised concerns with the adequacy of the conflicts
management framework which applies to the AREs to manage the inherent conflicts
arising from the IOOF Group’s organisational structure.
33. In particular, APRA has raised concerns with the:
a.
misinterpretation of section 52(2)(d) and 52A(2)(d) of the SIS Act reflected in the
AREs’ implementation of the Conflict Management Framework and the ‘Directors
Conflicts Guide’;
b.
ARE directors’ inadequate understanding of the conflicts present in its dual RE /
RSE licensee business model; and
c.
failure to consistently document in Board, committee or other relevant meeting
minutes details of conflicts identified or actions taken to avoid or manage such
conflicts (see Attachment 5).
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34. APRA raised significant concerns with Questor’s actions in relation to the Cash
Management Trust (
CMT) over-distribution, remediation and compensation plan. In
particular, by letter dated 12 December 2016 APRA raised serious concerns about the
extent to which the interests of the superannuation members were considered and
prioritised by Questor, as required by section 52(2)(d) of the SIS Act in the event of a
conflict (see Attachment 6). In APRA’s view, the actions taken by IOOF in relation to the
CMT Breach demonstrate a failure of the Conflicts Management Framework to identify
conflicts and appropriately manage or avoid the conflict.
35. By letter dated 19 April 2017, IOOF responded to APRA’s concerns in relation to the
CMT Breach (see Attachment 7).
36. To address APRA’s ongoing concerns with inadequate risk culture and conflict
management which affected the AREs in the IOOF Group, APRA’s 2017 Prudential
Review Report required the engagement of an independent and appropriately skilled
external party to review the IOOF Group’s risk culture and approach to conflicts
management (see Attachment 5). This review was subsequently conducted by EY.
37. In September 2018, EY provided a final report which also raised numerous issues and
concerns with the IIML’s compliance with the SIS Act and relevant prudential standards
(
EY Report) (see Attachment 8). EY’s report found:
a.
the conflicts of interest management challenges arise from the dual regulated and
multiple entity nature of IIML;
b.
a potential breach of
Prudential Standard SPS 520: Fit and Proper (
SPS 520).
Responsible persons for IIML as RSE licensee identify any conflicts of duty
through a self-attestation process, however any conflicts identified do not appear
to have been reviewed by IIML in accordance with SPS 520 (paragraph 18(d));
c.
breaches, or potential breaches, of
Prudential Standard SPS 521: Conflicts of
Interest (
SPS 521), including:
i.
the existing Conflicts of Interest Framework is applicable to the whole of the
IOOF group, rather than specific to IIML, and requires the approval of a
number of entities within the IOOF Group (SPS 521, paragraphs 8 and 10);
ii.
the Conflicts of Interest Framework does not contain any specific provision
requiring responsible persons to disclose relevant duties and interests
before taking up a position (SPS 521, paragraph 12);
iii.
it is not evident that the RSE licensee Boards are required to approve the
use of all policies and functions applicable to them. It appears that some
policies applicable to the RSE Licensees have been approved by the IHL
Board on behalf of the RSE Licensees. It is also not evident that the RSE
Licensee Boards have conducted any analysis of the Group policies to
ensure that they have appropriate regard to their business operations and
specific requirements (SPS 521, paragraph 13);
iv.
the Conflicts of Interest Framework, which applies to all IOOF entities,
contains a broad statement that ‘when a conflict cannot reasonably be
managed it must be avoided’. This is inaccurate for the RSE Licensees, as
it does not take into account the covenants contained in sections 52 and 52A
of the SIS Act (SPS 521, paragraph 18(c));
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v.
there is a standing item for the disclosure of ‘Conflicts of Interest’ in the board
minutes, but the approach to documenting treatment plans is templated and
the detail is recorded in another document. This is merely referenced in the
board minutes, whereas SPS 521 paragraph 18(e) requires the details on
the conflict and action taken to be recorded;
vi.
while EY observed that entities in the IOOF Group record the relevant duties
and interests of other internal and external responsible persons, this is not
reflected in the Conflicts of Interest Framework (SPS 521, paragraph 19);
d.
a misunderstanding of the covenants contained in sections 52 and 52A of the SIS
Act, including the requirement to give priority to the interests of superannuation
members in the event of a conflict, as demonstrated through;
i.
the inclusion of the statement ‘when a conflict cannot reasonably be
managed it must be avoided’ in the Conflicts of Interest Framework which
applies to all IOOF entities, but is inaccurate for the RSE licensees as it does
not take into account the SIS Act covenants;
ii.
the practice of sending a single board paper for IIML to make a decision with
respect to a transaction made in both of IIML’s capacities and the decision
is considered in a single board meeting of IIML;
iii.
related party transactions between IIML as RSE Licensee and IIML as RE
are not recognised or documented. IIML rarely obtains an independent
expert report or an independent advice as to whether the board decision is
in the best interests of superannuation members before making a conflicted
investment decision;
iv.
EY’s observation that some Senior Leaders consider that IIML must meet all
members’ interests and balance the interest of superannuation fund
beneficiaries and RE members and the sustainability of earnings for the
IOOF Group.
38. IOOF has prepared an Action Plan to address the findings of the EY Report, which sets
out the timeframes within which IOOF will address each of EY’s recommendations (see
Attachment 9).
IOOF’s inability to address APRA’s concerns in a timely and productive manner
39. On 5 March 2018, APRA reiterated its concerns in respect of the deficiencies in the
implementation of the Conflicts Management Framework and the inherent conflicts of
interest and duty presented by the composition of the ARE Boards (see Attachment 10).
40. On 20 March 2018, IOOF set out proposals to address APRA’s concerns, including to
appoint an independent chair to lead a majority independent board and to hold separate
meetings for IIML in its capacity as RE and RSE Licensee (
RSEL) (see Attachment 11).
41. On 19 June 2018, APRA set out the following minimum changes it expected IHL and the
AREs to implement in a timely manner to strengthen the management of conflicts and
address APRA’s governance concerns ahead of the proposed acquisition of ANZ’s P&I
Business:
a.
splitting of the RSEL and RE functions into distinct legal entities;
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b.
establishment of a dedicated business function to support the AREs;
c.
appointment of an Independent Chair to lead a majority Independent Board for the
AREs (with independence to include independence from IHL); and
d.
consolidation of RSELs and Registrable Superannuation Entities (
RSEs) post-
acquisition of ANZ’s P&I Business (see Attachment 12).
42. By letter dated 14 August 2018, IHL, presumably on behalf of the AREs, agreed to the
changes set out in paragraph 41(a), (c) and (d) above (see Attachment 13).
The Managed Action Plan
43. On 4 September 2018, APRA set out a Managed Action Plan (
MAP) which includes the
following requirements:
a.
splitting RSE license and RE functions of IIML and AET into distinct legal entities;
b.
establishing a dedicated business function to support the AREs;
c.
appointing a suitably skilled independent executive to lead the dedicated business
function;
d.
appointing an independent chair to lead a majority independent board for the AREs
within the IOOF Group;
e.
consolidating the RSE licenses and RSEs post-acquisition of ANZ’s P&I Business;
f.
amending the structure and composition of ARE board committees to ensure
ongoing compliance with
Prudential Standard SPS 510: Governance and
Prudential Standard CPS 510: Governance;
g.
completing the EY Independent Review into conflicts of interest and risk culture,
including timely closure of any findings; and
h.
ongoing reporting to APRA (see Attachment 15).
44. The items referred to in paragraph 43(f) to (h) above are in addition to the minimum
requirements which were set out in APRA’s letter dated 19 June 2018.
45. On 20 September 2018 IHL and each of the AREs agreed to implement the MAP to
address the concerns set out in paragraphs 24 to 34 above, subject to some comments
on timing and approach (see Attachment 16). Further correspondence between APRA
and IOOF in relation to the MAP can be found at Attachments 17 and 18.
Progress on the MAP to date
46. While IHL and the AREs have agreed to implement the MAP there have already been
delays in its implementation. For example, IHL and the AREs:
a.
did not commence holding separate Board meetings for IIML (as RSEL and RE)
until 26 September 2018 and AET (as RSEL and RE) until 28 November 2018,
despite this separation of Board meetings being required by 14 September 2018
(see Attachments 19 to 21);
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b.
provided a plan to give effect to the legal separation of the RSEL and RE function
in November 2018. However the plan does not provide sufficient detail, particularly
in relation to the reasons for the time given for the different stages of the plan, to
satisfy the MAP item (required by 30 September 2018) (see Attachment 22);
c.
have indicated that the legal separation of the RSEL and RE function will not take
effect until at least March 2020, despite APRA requiring that the legal separation
occur by 30 June 2019 (see Attachments 21 and 22)
d.
have not appointed an appropriately skilled and experienced person to head the
dedicated business function to support the AREs. The appointment of the interim
CEO to this role does not satisfy the requirement or intent of the MAP item (which
was required to be completed by 1 October 2018) (see Attachment 21);
e.
provided a board paper relating to the proposed dedicated business function dated
27 November 2018 which does not refer to a plan to establish a dedicated
business function to support IL. The MAP requirement is to establish a dedicated
business function to support all of the AREs, not just the RSE licensees (see
Attachment 23);
f.
appointed an interim Independent Chair for the ARE Boards on 13 September
2018. This does not satisfy the requirement or intent of the MAP item, which is to
appoint a permanent Independent Chair to the ARE Boards (which was required
to be completed by 14 September 2018). Andrew Bloore has subsequently been
appointed permanent Chair of AET and IL, but not IIML (see Attachment 24);
g.
moved to a majority independent board for the AREs on 14 November 2018 (which
was required to be completed by 2 November 2018) (see Attachment 24);
h.
established dedicated Board Audit and Risk Committees close to two months late
per the MAP action timeframes. APRA notes that dedicated Board Audit and Risk
Committees first met on 20 November 2018, despite the requirement to establish
the committees by 30 September 2018 (see Attachment 22);
i.
did not provide its first fortnightly report until 31 October 2018, more than a month
after agreeing to implement the MAP on 20 September 2018 (see Attachment 25);
and
j.
did not hold its first monthly meeting with APRA until 15 November 2018, almost
two months after agreeing to implement the MAP (see Attachment 26).
47. 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 timeframes set out by
APRA in the MAP were based on the expectation that work would have already been
underway to complete these action items following the receipt of APRA’s letter dated 19
June 2018.
Preliminary view
48. APRA’s concerns have been raised since at least 2015 and many of the specific items
included in the MAP have been raised with the AREs since March 2018. The concerns
have not been addressed to APRA’s satisfaction for an unacceptable period and APRA
is not satisfied with the progress on the implementation of the MAP to date.
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49. Given IOOF’s long history of delays and non-compliance with APRA’s requirements, as
wel as the need for enduring change in the IOOF Group’s culture and approach to
conflicts management, APRA is considering imposing additional conditions on the
licence or registration of the AREs to ensure that:
a.
the AREs implement the MAP in accordance with the specified timeframes, unless
otherwise agreed by APRA;
b.
the AREs implement a process for the nomination and appointment of directors to
the ARE boards which is independent from IHL, to be complied with on an ongoing
basis;
c.
APRA is notified prior to any director appointments to the board of the AREs being
finalised;
d.
the AREs within the IOOF Group have a suitably skilled independent chair leading
a majority independent board; and
e.
an APRA- approved independent reviewer (or reviewers) can monitor the progress
of the ARE’s in completing the MAP items and their compliance with the proposed
additional conditions and directions are nearing completion.
50. For the reasons set out in paragraphs 37 above, APRA considers that there are
reasonable grounds to believe that the RSE licensee has breached a condition on its
RSE licence. For this reason, APRA is also considering issuing directions to comply with
licence conditions to ensure that IIML rectifies the breaches, or potential breaches, of
the SIS Act and relevant prudential standards identified in the EY Report dated 14
September 2018 in a timely manner.
Response
51. This letter provides you with notice of the potential conditions that APRA is considering
imposing on the RSE licences of IIML and AET and on the registration of IL, and the
potential directions APRA is considering issuing to IIML. This letter also provides you
with an opportunity to respond to APRA’s preliminary view.
52. Please provide your response to this letter within 14 days of the date of this letter, being
on or before 20 December 2018. If you do not provide a written response by 20
December 2018, APRA may proceed to make decisions without any further notice.
Yours sincerely
Brandon Khoo
Executive General Manager, Diversified Institutions Division
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Schedule of Documents
Attachment
Document description
A
Proposed licence conditions - IIML
B
Proposed licence conditions - AET
C
Proposed registration conditions - IL
D
Proposed directions to comply with licence conditions - IIML
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ATTACHMENT A
I.O.O.F. Investment Management Ltd
Proposed additional conditions to be imposed on the RSE Licence
Legal Separation of IIML - [
MAP Action Item 1]
1.
By 30 June 2019 IIML must only perform IIIML’s RSE licensee functions.
2.
Until Condition 1 is met, IIML, when conducting IIML’s RSE licensee functions, must
hold board meetings separate from the board meetings held by IIML when conducting
IIML’s RE functions.
Dedicated Business Function - [MAP Action Item 2]
3.
The RSE licensee must establish a dedicated business function to support the RSE
licensee by 31 March 2019. The dedicated business function may be shared with other
AREs within the IOOF Group. The RSE licensee must ensure that the dedicated
business function:
(a)
supports the RSE licensee to fulfil its fiduciary obligations by advocating for
member interests;
(b)
assists with the development and implementation of a Strategy for the RSE
licensee that is focused on the delivery of quality member outcomes, whilst
having regard for the IOOF Group Strategy;
(c)
manages day to day relationships with service providers and regulators on behalf
of the RSE licensee, ensuring arms-length relationships with related parties;
(d)
provides independent risk reporting on behalf of the RSE licensee, including
investment reporting that is independent from the IOOF Group’s investment
business;
(e)
ensures that an effective compliance and risk regime is in place with an
appropriate risk culture on behalf of the RSE licensee; and
(f)
considers any contagion or reputational impacts on the RSE licensee.
4.
The RSE licensee must appoint an appropriately skilled and experienced head of the
dedicated business function by 31 January 2019 with APRA’s prior written approval in
relation to the suitability of the candidate.
Independence of the Board – [MAP Action Item 3]
5.
At all times, the board of the RSE licensee must be chaired by an independent director.
6.
At all times, the minimum number of independent directors of the RSE licensee must be
at least a simple majority of the total number of directors.
7.
The RSE licensee must implement a process for the nomination and appointment of
directors which is independent from the IOOF Group and any of the IOOF Group’s
committees, with the exception of the AREs.
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8.
The RSE licensee must notify APRA of the name, qualifications, experience and any
other relevant details of any director proposed to be appointed to the RSE licensee board
at least 30 days prior to the appointment of that independent director.
Consolidation -
[MAP Action Item 4]
9.
The RSE licensee must appoint an independent expert (or experts) by 30 June 2019 to
prepare an analysis in relation to the possible consolidation of its RSEs, including with
any other RSE within the IOOF Group, or the possible cancellation of its RSE licensee’s
licence. A copy of that report must be provided to APRA within 7 days of its completion.
Board Audit and Risk Committee -
[MAP Action Item 5]
10. The RSE licensee must have its own Board Audit Committee separate from the other
entities of the IOOF Group that complies with Prudential Standard SPS 510 Governance
in force from time-to-time.
11. The RSE licensee must have its own Board Risk Committee separate from the other
entities of IOOF Group that complies with Prudential Standard SPS 510 Governance in
force from time-to-time.
Compliance with IOOF Action Plan -
[MAP Action Item 6]
12. The RSE licensee must complete the ‘IOOF Action Plan – Independent Review of COI
Management Culture and approach to Conflicts Management’ dated 12 October 2018
by the dates set out in that plan.
Progress Reports -
[MAP Action Item 7]
13. The RSE licensee must prepare and issue a report to APRA on the progress of the
implementation of the MAP on a fortnightly basis. A single report may be provided on
behalf of the RSE licensee and the other AREs within the IOOF Group.
14. The RSE licensee must meet with APRA on at least a monthly basis to report on the
progress of the MAP.
15. The RSE licensee must provide APRA with a complete and unedited copy of all board
and sub-committee meeting minutes and relevant papers which document the
discussions in relation to the MAP within 14 days of the meeting of the board or sub-
committee.
Independent Reviewer – [Additional items]
16. The RSE licensee must appoint an independent reviewer (or reviewers), to be approved
by APRA and on terms approved by APRA, to report to APRA every three months
commencing from 31 December 2018 and continuing until APRA considers that all items
in the MAP have been completed, in relation to:
(a)
the status and quality of compliance with these additional conditions on the RSE
licensee’s licence; and
(b)
items in the MAP that the RSE licensee considers are nearing completion.
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Variations of Time
17. APRA may at any time vary in writing:
(a)
the dates set out in paragraphs [1], [3], [4], [9], [12] and [16] by which; and
(b)
the time frames set out in paragraphs [8], [9] and [13] to [16] within which,
the RSE licensee is obliged to comply with the above conditions.
Interpretation:
In these conditions:
APRA means the Australian Prudential Regulation Authority.
AREs means IIML, Australian Executor Trustees Limited ACN 007 869 794, IOOF Ltd ACN
087 649 625 and IOOF Group Pty Ltd ACN 157 711 512.
IIML means I.O.O.F. Investment Management Limited ACN 006 695 021.
IIML’s RE functions means the functions and powers exercised by IIML in its capacity as an
RE.
IIML’s RSE licensee functions means the functions and powers exercised by IIML in its
capacity as an RSE licensee.
Independent director:
(a) has the same meaning as in section 10(1) and section 93A of the SIS Act; and
(b) means a person who is not:
i.
a director;
ii.
an employee; or
iii. a member of a committee,
of an entity within the IOOF Group which is not an ARE.
IOOF Group means IOOF Holdings Ltd ACN 100 103 722 and its subsidiaries.
MAP means the managed action plan contained in Appendix 1 to APRA’s letter to the RSE
licensee dated 4 September 2018, as amended on 5 September 2018.
RE means a responsible entity of a management investment scheme registered under Part
5C of the
Corporations Act 2001 (Cth).
RSE means a registrable superannuation entity for the purposes of Part 2B of the
Superannuation Industry (Supervision) Act 1993 (Cth).
RSE licence has the meaning given in section 10(1) of the SIS Act.
RSE licensee means IIML acting in its capacity as an RSE licensee.
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SIS Act means the
Superannuation Industry (Supervision) Act 1993 (Cth).
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ATTACHMENT B
Australian Executor Trustees
Proposed additional conditions to be imposed on the RSE Licence
Legal Separation of AET - [
MAP Action Item 1]
1.
By 30 June 2019 AET must only perform AET’s RSE licensee functions.
2.
Until Condition 1 is met, AET, when conducting AET’s RSE licensee functions, must
hold board meetings separate from the board meetings held by AET when conducting
AET’s RE functions.
Dedicated Business Function - [MAP Action Item 2]
3.
The RSE licensee must establish a dedicated business function to support the RSE
licensee by 31 March 2019. The dedicated business function may be shared with other
AREs within the IOOF Group. The RSE licensee must ensure that the dedicated
business function:
(g)
supports the RSE licensee to fulfil its fiduciary obligations by advocating for
member interests;
(h)
assists with the development and implementation of a Strategy for the RSE
licensee that is focused on the delivery of quality member outcomes, whilst
having regard for the IOOF Group Strategy;
(i)
manages day to day relationships with service providers and regulators on behalf
of the RSE licensee, ensuring arms-length relationships with related parties;
(j)
provides independent risk reporting on behalf of the RSE licensee, including
investment reporting that is independent from the IOOF Group’s investment
business;
(k)
ensures that an effective compliance and risk regime is in place with an
appropriate risk culture on behalf of the RSE licensee; and
(l)
considers any contagion or reputational impacts on the RSE licensee.
4.
The RSE licensee must appoint an appropriately skilled and experienced head of the
dedicated business function by 31 January 2019 with APRA’s prior written approval in
relation to the suitability of the candidate.
Independence of the Board – [MAP Action Item 3]
5.
At all times, the board of the RSE licensee must be chaired by an independent director.
6.
At all times, the minimum number of independent directors of the RSE licensee must be
at least a simple majority of the total number of directors.
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7.
The RSE licensee must implement a process for the nomination and appointment of
directors which is independent from the IOOF Group and any of the IOOF Group’s
committees, with the exception of the AREs.
8.
The RSE licensee must notify APRA of the name, qualifications, experience and any
other relevant details of any director proposed to be appointed to the RSE licensee board
at least 30 days prior to the appointment of that independent director.
Consolidation -
[MAP Action Item 4]
9.
The RSE licensee must appoint an independent expert (or experts) by 30 June 2019 to
prepare an analysis in relation to the possible consolidation of its RSEs, including with
any other RSE within the IOOF Group, or the possible cancellation of its RSE licensee’s
licence. A copy of that report must be provided to APRA within 7 days of its completion.
Board Audit and Risk Committee -
[MAP Action Item 5]
10. The RSE licensee must have its own Board Audit Committee separate from the other
entities of the IOOF Group that complies with Prudential Standard SPS 510 Governance
in force from time-to-time.
11. The RSE licensee must have its own Board Risk Committee separate from the other
entities of the IOOF Group that complies with Prudential Standard SPS 510 Governance
in force from time-to-time.
Progress Reports -
[MAP Action Item 7]
12. The RSE licensee must prepare and issue a report to APRA on the progress of the
implementation of the MAP on a fortnightly basis. A single report may be provided on
behalf of the RSE licensee and the other AREs within the IOOF Group.
13. The RSE licensee must meet with APRA on at least a monthly basis to report on the
progress of the MAP.
14. The RSE licensee must provide APRA with a complete and unedited copy of all board
and sub-committee meeting minutes and relevant papers which document the
discussions in relation to the MAP within 14 days of the meeting of the board or sub-
committee.
Independent Reviewer – [Additional items]
15. The RSE licensee must appoint an independent reviewer (or reviewers), to be approved
by APRA and on terms approved by APRA, to report to APRA every three months
commencing from 31 December 2018 and continuing until APRA considers that all items
in the MAP have been completed, in relation to:
(c)
the status and quality of compliance with these additional conditions on the RSE
licensee’s licence; and
(d)
items in the MAP that the RSE licensee considers are nearing completion.
Variations of Time
16. APRA may at any time vary in writing:
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(a)
the dates set out in paragraphs [1], [3], [4], [9] and [15] by which; and
(b)
the time frames set out in paragraphs [8], [9] and [12] to [15] within which,
the RSE licensee is obliged to comply with the above conditions.
Interpretation:
In these conditions:
APRA means the Australian Prudential Regulation Authority.
AREs means AET, I.O.O.F. Investment Management Limited ACN 006 695 021, IOOF Ltd
ACN 087 649 625 and IOOF Group Pty Ltd ACN 157 711 512.
AET means Australian Executor Trustees Limited ACN 007 869 794.
AET’s RE functions means the functions and powers exercised by AET in its capacity as an
RE.
AET’s RSE licensee functions means the functions and powers exercised by AET in its
capacity as an RSE licensee.
Independent director:
(c) has the same meaning as in section 10(1) and section 93A of the SIS Act; and
(d) means a person who is not:
j.
a director;
ii.
an employee; or
iii. a member of a committee,
of an entity within the IOOF Group which is not an ARE.
IOOF Group means IOOF Holdings Ltd ACN 100 103 722 and its subsidiaries.
MAP means the managed action plan contained in Appendix 1 to APRA’s letter to the RSE
licensee dated 4 September 2018, as amended on 5 September 2018.
RE means a responsible entity of a management investment scheme registered under Part
5C of the
Corporations Act 2001 (Cth).
RSE means a registrable superannuation entity for the purposes of Part 2B of the
Superannuation Industry (Supervision) Act 1993 (Cth).
RSE licence has the meaning given in section 10(1) of the SIS Act.
RSE licensee means AET acting in its capacity as an RSE licensee.
SIS Act means the
Superannuation Industry (Supervision) Act 1993 (Cth).
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ATTACHMENT C
IOOF Ltd
Proposed additional conditions to be imposed on the company’s registration
Dedicated Business Function - [MAP Action Item 2]
1.
The Company must establish a dedicated business function to support the Company by
31 March 2019. The dedicated business function may be shared with other AREs within
the IOOF Group. The Company must ensure that the dedicated business function:
(m) supports the Company to fulfil its fiduciary obligations by advocating for member
interests;
(n)
assists with the development and implementation of a Strategy for the Company
that is focused on the delivery of quality member outcomes, whilst having regard
for the IOOF Group Strategy;
(o)
manages day to day relationships with service providers and regulators on behalf
of the Company, ensuring arms-length relationships with related parties;
(p)
provides independent risk reporting on behalf of the Company, including
investment reporting that is independent from the IOOF Group’s investment
business;
(q)
ensures that an effective compliance and risk regime is in place with an
appropriate risk culture on behalf of the Company; and
(r)
considers any contagion or reputational impacts on the Company.
2.
The Company must appoint an appropriately skilled and experienced head of the
dedicated business function by 31 January 2019 with APRA’s prior written approval in
relation to the suitability of the candidate.
Independence of the Board – [MAP Action Item 3]
3.
At all times, the board of the Company must be chaired by an independent director.
4.
At all times, the minimum number of independent directors of the Company must be at
least a simple majority of the total number of directors.
5.
The Company must implement a process for the nomination and appointment of
directors which is independent from the IOOF Group and any of the IOOF Group’s
committees, with the exception of the AREs.
6.
The Company must notify APRA of the name, qualifications, experience and any other
relevant details of any director proposed to be appointed to the Company’s board at
least 30 days prior to the appointment of that independent director.
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Board Audit and Risk Committee -
[MAP Action Item 5]
7.
The Company must have its own Board Audit Committee separate from the other entities
of the IOOF Group that complies with Prudential Standard CPS 510 Governance in force
from time-to-time.
8.
The Company must have its own Board Risk Committee separate from the other entities
of the IOOF Group that complies with Prudential Standard CPS 510 Governance in force
from time-to-time.
Progress Reports -
[MAP Action Item 7]
9.
The Company must prepare and issue a report to APRA on the progress of the
implementation of the MAP on a fortnightly basis. A single report may be provided on
behalf of the Company and the other AREs within the IOOF Group.
10. The Company must meet with APRA on at least a monthly basis to report on the
progress of the MAP.
11. The Company must provide APRA with a complete and unedited copy of all board and
sub-committee meeting minutes and relevant papers which document the discussions
in relation to the MAP within 14 days of the meeting of the board or sub-committee.
Independent Reviewer – [Additional items]
12. The Company must appoint an independent reviewer (or reviewers), to be approved by
APRA and on terms approved by APRA, to report to APRA every three months
commencing from 31 December 2018 and continuing until APRA considers that all items
in the MAP have been completed, in relation to:
(e)
the status and quality of compliance with these additional conditions on the
Company’s registration; and
(f)
items in the MAP that the Company considers are nearing completion.
Variations of Time
13. APRA may at any time vary in writing:
a.
the dates set out in paragraphs [1], [2] and [12] by which; and
b.
the time frames set out in paragraphs [6], [9] to [12] within which,
the Company is obliged to comply with the above conditions.
Interpretation:
In these conditions:
APRA means the Australian Prudential Regulation Authority.
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AREs means the Company, I.O.O.F. Investment Management Limited ACN 006 695 021,
Australian Executor Trustees Limited ACN 007 869 794 and IOOF Group Pty Ltd ACN 157
711 512.
Company means IOOF Ltd ACN 087 649 625.
Independent director means a person who is not:
(a)
a director;
(b)
an employee; or
(c)
a member of a committee,
of an entity within the IOOF Group which is not an ARE.
IOOF Group means IOOF Holdings Ltd ACN 100 103 722 and its subsidiaries.
MAP means the managed action plan contained in Appendix 1 to APRA’s letter to the
Company dated 4 September 2018, as amended on 5 September 2018.
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ATTACHMENT D
IOOF Investment Management Ltd
Proposed directions to comply with licence conditions
Section 29E(1)(a) of the
Superannuation Industry (Supervision) Act 1993 (Cth) (
the Act),
which includes but is not limited to an obligation to comply with the following provisions of the
RSE licensee law:
(a)
sections 52(2)(d) of the Act by:
i.
amending any Conflicts of Interest Framework policies which apply to the RSE
licensee to properly address the trustee obligations under section 52(2)(d) of the
Act in accordance with recommendations A.11.1 and A.11.2 of the EY Report by
31 December 2018;
(b)
Prudential Standard SPS 520: Fit and Proper (
SPS 520) by:
i.
amending the Responsible Persons Policy which applies to the RSE licensee to
satisfy the requirements contained in paragraph 18(d) of SPS 520 in accordance
recommendation B.8.1 of the EY Report by 31 December 2018 (paragraph 18(d)
of SPS 520);
(c)
Prudential Standard SPS 521: Conflicts of Interest (
SPS 521) by:
i.
establishing a separate Conflicts of Interest Framework for the RSE licensee which
is specific to, and for the operations of, the RSE licensee (the
RSE COI
Framework) in accordance with recommendation A.1.1 of the EY Report
(paragraphs 8 and 10 of SPS 521);
ii.
amending the RSE COI Framework to require all incoming responsible persons to
disclose all relevant duties and interests before they are appointed as a
responsible person of the RSE licensee in accordance with recommendation A.3.1
of the EY Report (paragraph 12 of SPS 521) by 31 December 2018;
iii.
amending the RSE COI Framework to require the RSE licensee board to approve
the use of, and any changes to, each group policy that references conflicts of
interest obligations that is applicable to the RSE licensee in accordance with
recommendation A.2.1 of the EY Report (paragraph 13 of SPS 521) by 31
December 2018;
iv.
recording in the board minutes of the RSE licensee each conflict identified and the
action taken to avoid and manage this conflict (paragraph 18(e) of SPS 521) by
31 December 2018;
v.
amending the RSE COI Framework to satisfy the requirement to consider all
conflicts arising from the RSE licensee’s relationship with service providers or
advisers in accordance with recommendation A.4.1 of the EY Report (paragraph
19 pf SPS 521) by 31 December 2018.
Interpretation
EY means Ernst & Young.
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EY Report means the report titled ‘Independent Review of COI Management Culture and
approach to Conflicts Management’ dated 14 September 2018.
RSE licensee means I.O.O.F. Investment Management Limited ACN 006 695 021.
RSE licensee law has the same meaning as in section 10 of the Act.
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