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The Australian Prudential Regulation Authority (APRA) has suffered a major defeat in the Federal Court, in the first case it has prosecuted this decade.
Key points:
- APRA alleged IOOF's executives failed to act in the best interest of their clients
- The regulator failed to prove its "unpersuasive" case, and was ordered to pay costs
- IOOF had compensated clients (for a mistake it made) using their own retirement savings — without telling them
APRA was seeking court orders to ban five executives of wealth management firm IOOF (which originally stood for the "Independent Order of Odd Fellows") from managing people's retirement savings.
They include the company's former managing director Chris Kelaher and former chairman George Vernados.
The regulator had argued that Mr Kelaher and his colleagues had broken the law by failing to act in the best interests of their superannuation clients.
But in a scathing 300-page judgment, Justice Jayne Jagot ruled that APRA had failed to prove its case and ordered the regulator to pay costs.
"APRA has failed to prove any of the contraventions of the SIS [Superannuation Industry (Supervision)] Act alleged against the respondents," she said.
The judge found the regulator's approach was "unpersuasive" and was riddled with "systematic weakness".
IOOF said, in a brief statement, that it is "currently reviewing the written judgment in detail" and plans to comment further in due course.
Company compensated customers with their own funds
By 2:10pm (AEST), the company's stock had surged 7.9 per cent to $5.99, taking its market value to $2.1 billion.
However, that remains a long way off its share price in early January 2018 ($11.32), before IOOF's reputation was savaged at the banking royal commission.
In August 2018, the commission heard 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.
Essentially, the compensated their clients using their own retirement funds without telling them.
Yet the company maintained that this practice met the "pub test".
The latest setback for the financial regulator comes after a damning capability review, ordered by the Government.
It found that APRA lacks transparency, fails to communicate effectively and is not tough enough on the banks and financial institutions it regulates.
APRA has been contacted for comment and said it will be releasing a media statement soon.
Topics: business-economics-and-finance, company-news, courts-and-trials, regulation, superannuation, australia