The AMP board failed to disclose a potential conflict of interest involving one of its high profile directors - John Fraser - before shareholders were asked to ratify his appointment at the annual meeting in May this year.
As reported in Banking Day on Tuesday, Fraser, a former head of the Treasury Department, was appointed a director of startup bank Judo in September last year – five days before he joined the AMP group board.
Fraser’s potential conflict came into focus in February of this year when he was also appointed a director of AMP’s banking arm, AMP Bank. By that time Judo’s application for a domestic banking licence had been public knowledge for more than a year.
Judo’s application received formal approval from the Australian Prudential Regulation Authority on 24 April – eight days before the AMP shareholders’ meeting.
A transcript of the AGM proceedings published on the AMP website shows that neither Fraser nor chairman David Murray disclosed to AMP shareholders that his duties as a company director also extended to a potential competitor of AMP Bank.
While it is true that AMP Bank is focused on consumer lending and Judo is positioned as a business lender, the two banks are set to compete in the deposits market when Judo launches a menu of savings products later this year.
In an interview with Banking Day in April, Judo’s CEO Joseph Healy was upfront about his bank’s intention to pitch deposit products to retail customers.
“While Judo will keep its focus on being a business lender, our deposit products will be aimed at both retail and business customers,” he said at the time.
The potential conflict is clearly a matter for Fraser, AMP, Judo and regulators to manage, but disclosure of its existence would have ensured that AMP shareholders were fully informed of Fraser’s circumstance before they voted to confirm his appointment at the May AGM.
AMP did not disclose that Fraser was a Judo director in either the annual report or the notice papers for shareholders’ meeting that were each filed to the ASX in March.
More than 99 per cent of the votes cast at the meeting supported Fraser’s election to the board.
An AMP spokesperson said last night that the board had processes in place to manage any conflicts that might arise.
“AMP Bank primarily provides retail customers with residential and investment property home loans, deposit and transaction accounts and SMSF products,” the spokesperson said.
“The AMP board has strong processes for conflict management, and is confident any conflicts that arise will be managed effectively.”
APRA yesterday responded to questions put to it by Banking Day earlier this week on whether any prudential regulations constrained the ability of directors to accept board appointments at two or more banks.
“APRA’s prudential standards do not expressly prohibit directors sitting on boards of more than one authorised deposit-taking institution at a time, but it is rare,” a spokesperson for the regulator said.
“APRA is mindful that such a situation can create risks, including the potential for conflicts of interest, that need to be identified and appropriately managed.
“APRA considers these risks on a case-by-case basis during its licensing process and also through its regular supervision of regulated entities.
“Ultimately, boards are responsible for appointing directors who have the necessary skills, knowledge and experience for the effective and prudent operation of the institution, and who meet APRA’s fit and proper requirements.”
A leading risk expert last night called for APRA to be given the power to approve people nominated to sit on bank boards as a safeguard against heavily conflicted directors.
According to risk consultant and former Macquarie University academic Patrick McConnell, prudential regulators in Ireland and the UK already hold such powers.
"The issue of directors sitting on the boards of two or more banks is a development that APRA and ASIC should be very wary of," he said.
"I believe all appointments to bank boards should require approval from ASIC or APRA so that the impact of directors with profound conflicts is minimised.
"The Bank Executive Accountability Regime (BEAR) is useless because the prudential regulator cannot block board appointments.”
One of Australia’s most influential corporate governance researchers – Helen Bird from Swinburne University’s Law School – said there was clear potential for conflicts of interest to occur where a director sits on the boards of two banks.
“It would probably be unwise for individuals to put themselves in that situation – of course it depends on the type of banking activities they are involved in,” she said.
“Being a director of a bank is perhaps more onerous than other company directorships.
“Banking is a highly regulated industry and a director of a bank is a demanding role that requires a commensurate level of commitment and responsibility.”
Bird observed that the introduction of the BEAR regime had blurred responsibilities for conduct regulation between ASIC and APRA.
She said issues relating to multiple directorships in the banking industry were more likely to fall within ASIC’s jurisdiction as the regulator tasked with monitoring the conduct of directors and officers.