APRA: Swan Cbus conflict perception not enough

The Australian Prudential Regulation Authority (APRA) has pointed to its failed 2019 prosecution of former IOOF managing director, Chris Kelaher, as the basis upon which it believes Cbus chair, Wayne Swan, is not necessarily conflicted by also being Federal President of the Australian Labor Party (ALP).

Directly asked by NSW Liberal Senator, Andrew Bragg about Swan’s status, APRA referenced the action it initiated against Kelaher around his role in IOOF’s use of superannuation operational risk reserves pertaining to two of its superannuation funds.

In doing so, it pointed to the decision of the Federal Court of Australia that the perception of the existence of a conflict of interest is not enough.

While pointing out that superannuation fund trustees had to comply with the Superannuation Industry (Supervision) Act and APRA’s prudential framework on Conflicts of Interest, it ultimately referenced the outcome of the case against Kelaher and IOOF.

“APRA requires trustees to implement an effective conflicts management policy. APRA expects that an effective conflicts management policy will enable the trustees to identify, assess, mitigate, manage and monitor actual and potential conflicts of interest,” it said in answer to Bragg.

“Further, the SIS Act requires that where actual conflict arises and has not been avoided, beneficiaries’ interests must be prioritised over duties and interests of all other persons.”

“It is instructive to note the view the Court held in Australian Prudential Regulation Authority v Kelaher [2019] FCA 1521 (20 September 2019),” it said.

It then cited the Federal Court judgement as stating:  “The no conflicts covenant is not about avoiding conflicts of interest. Conflicts of interest are inevitable. It is about managing conflicts of interest. And the conflicts which need to be managed are actual conflicts which have the capacity to significantly impact on the duty to act in the best interests of beneficiaries. Potential or theoretical conflicts are not to the point”.

The APRA case against Kelaher was one of the more notable actions to flow from the Royal Commission into Misconduct in the Banking, Financial Services and Superannuaiton industry.

It was seen as a ‘best interest duty’ test case and had been brought against IOOF entities, directors and officers but, ultimately, Federal Court Judge, Justice Jagot, found that “none of APRA’s claims of contraventions of the SIS Act against the respondents are sustainable with the consequence that there is no foundation for the making of any disqualification orders and the further amended originating application should be dismissed”.

IOOF rebranded to Insignia Financial in 2021.