Spotlight on Tyro director over conflict

George Lekakis Other ADI

The imminent sale of Tyro via an IPO might soon turn the investment community’s spotlight on a conflict of interest involving one of its directors, David Fite.

Fite has sat on the Tyro board since July 2018 and also has been a director of another business-focused bank, Judo, for the last 13 months.

It’s fair to say that Tyro and Judo are targeting different segments of the business banking market in terms of their core services offers.

Tyro is mostly focused on delivering merchant payments and associated services to SMEs while the asset side of Judo’s business model is skewed to SME lending.

That might support an argument that the two banks are not direct rivals, but that neat demarcation gets a tad messy for Fite in a few months when Judo starts bidding for the deposits of Australian small businesses.

As reported previously in Banking Day, Judo’s CEO Joseph Healy is planning to enter the deposits market with price leading offers.

That will position Judo as a formidable competitor to Tyro and leave Fite with a foot in both camps.

Managing such a conflict looms as quite a challenge given that a core activity of the banking caper involves deposit-taking.

It seems almost implausible that Fite could recuse himself from deliberations of the Tyro and Judo boards on all matters relating to deposits.

The bottom line in banking is that directors are ultimately responsible for both sides of the balance sheet – assets and liabilities. And deposits normally account for a material chunk of the latter.

For more than a year the Australian Prudential Regulation Authority has tolerated Fite’s unusual circumstance, but Tyro’s decision to seek an ASX listing might force the regulator to review its passive stance.

The problem here is that APRA doesn’t seem to have a clear standard for protecting depositors and the financial system against the creation of unreasonable conflicts of interest.

Since February, the regulator has also tolerated the circumstance of former Treasury boss John Fraser sitting on the boards of two banks.

Fraser recently became a director of AMP Bank even though he was already sitting on the board of Judo.

AMP Bank and Judo will compete directly for retail depositors later this year.

If APRA believes it appropriate for Fraser and Fite to retain their multiple directorships, it really owes an explanation to bank depositors and investors as to why that might be the case.

Otherwise, the regulator risks unleashing a fresh wave of conflicts in Australian banking.

The precedents being set by the Fraser and Fite cases might lead APRA to help author another governance crisis in the industry.