* MD, chairman step down following ban
* IOOF shares down over 40 pct since Friday (Updates with share price move, background)
By Paulina Duran
SYDNEY, Dec 10 (Reuters) - IOOF Holdings Ltd IFL.AX said on Monday its top two executives would step aside while they fight an unprecedented move by the prudential regulator to have them banned from running Australia's second-largest wealth manager.
The company's shares have slumped over 40 percent since the Australian Prudential (LON:PRU) Regulation Authority (APRA) moved on Friday to disqualify five top IOOF executives, including the firm's CEO, for failing to act in their customers' interests.
It is the first time the Australian regulator has moved to ban any currently serving executive with a pension fund manager for alleged breaches of rules governing the operations of trustees. Managing Director Christopher Kelaher and Chairman George Venardos would step aside from their respective positions immediately, the company said in a filing on Monday, pending the resolution of proceedings brought by APRA.
APRA alleges IOOF used pension customers' funds to compensate them for losses caused by the company.
It said it had been working with the firm to resolve concerns about unaddressed conflicts of interest between its shareholders and pension customers since 2015. Pension funds in Australia are obligated by law to put their customers' interests first.
"We maintain our position that the allegations made by APRA are misconceived, and will be vigorously defended," said Allan Griffiths, a non-executive director who was appointed acting chairman on Monday.
IOOF shares fell 6.6 percent on Monday morning to A$4.29, while the broader market .AORD was slightly lower. IOOF has lost about 40 percent of its market value since the regulator announced its intervention on Friday.
The allegations have cast a shadow on IOOF's $705 million deal to buy Australia and New Zealand Banking Group's ANZ.AX pension business. ANZ, Australia' No. 3 lender, said it was seeking urgent information from IOOF and the regulator.
Kelaher and Venardos will be on leave while they focus on defending the actions brought against them by APRA, the wealth manager said in a statement. Renato Mota, currently group general manager - wealth management, was appointed acting chief executive.
Chief Financial Officer David Coulter, company secretary Paul Vine and general counsel Gary Riordan will remain in their positions, the company said, but will have no responsibilities in relation to the management of the IOOF trustee companies and will have no engagement with APRA.