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IOOF action shows APRA operates on fine line between enforcement and stability

What was most interesting about the APRA formal notice was that it has given IOOF some wriggle room to get its house in order.

Of the eight licence conditions APRA wants to impose, two are to be completed by March 31, two are to be completed by June 30, and one needs to be ticked off by December 31.

“We look forward to continue working constructively with APRA to address and complete the remaining initiatives,” acting chairman Allan Griffiths said.

Given the uncharacteristic aggression with which APRA came after Kelaher, Venardos and IOOF – including accusing the directors of failing to understand the key laws governing the superannuation system, let alone comply with them – the visceral reaction to APRA’s announcement is that the regulator may have let IOOF off the hook a bit.

The timing of the announcement – so close to Christmas, when many in the market have checked out – only reinforces that impression.

But what this little episode with IOOF might really illustrate is the conundrum that APRA in particular faces in its dual roles as the regulator in charge of promoting the financial stability of the entire sector and the key cop on the superannuation beat.

APRA probably would have been within its rights to demand IOOF fixed its problems much faster than the new set of timetables allow. After all, several of the problems to be tackled – including formally splitting IOOF’s registrable super entity and responsible entity structures – were identified by APRA as far back as September 2015.

But the regulator clearly needs to consider the stability of IOOF too. This is a business with about 500,000 customers, $125 billion in funds under management and 2000 employees.

There’s no doubt APRA needs to force change on this business, which has been shown consistently to be resistant to it. And a bit of aggression in that approach is warranted, given the attitude Kelaher showed at the banking royal commission when he said it was “a matter of indifference” whether IOOF changed its super trustee structures at APRA’s behest.

But while the public might want APRA to throw the book at the likes of IOOF, the fact is it needs to take care it does not completely ruin the standing of a firm in the market, threaten its stability and make matters worse for clients, who have capital at risk.

This tension between enforcement and stability will not go away, whatever the public’s hunger for action.

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