* Prudential (LON:PRU) regulator finds conflicts of interest at IOOF
* APRA seeks to disqualify IOOF's CEO, CFO, chairman
* IOOF says to defend itself, issues already being addressed
* Move puts agreement to buy ANZ's pension business at risk (Adds risk of management overhaul comments, updates shares)
By Paulina Duran and Tom Westbrook
SYDNEY, Dec 7 (Reuters) - Australia's prudential regulator is looking to disqualify five top IOOF Holdings IFL.AX executives, including the firm's CEO, for failing to act in their customers' interests, marking its first such intervention against existing company officials.
The news sent shares of the wealth manager into a tailspin, down 36 percent, and 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.
The Australian Prudential Regulation Authority (APRA) has alleged that IOOF used money belonging to pension fund customers to compensate them for losses caused by the company. It said it has been working with the firm to resolve concerns about unaddressed conflicts of interest since 2015.
APRA has become "frustrated by a disappointing level of acceptance and responsiveness", its deputy chair, Helen Rowell, said in a statement on Friday.
The regulator said it now wants to ban the company's CEO, chairman, chief financial officer, in-house lawyer and company secretary from running a pension fund, adding it was also seeking to impose additional conditions on IOOF.
The five executives "have shown a lack of understanding of their personal and trustee obligations ... and a lack of contrition" for breaching pension-fund laws, APRA added.
IOOF said the allegations were misconceived and that it would vigorously defend against them. It added that it had already addressed or was addressing APRA's other concerns.
This is the first time APRA has sought to take action against current executives of a pension fund for not acting in the best interest of customers, its website shows.
In 2013, the regulator launched proceedings to disqualify a former director of a collapsed firm, Trio Capital, but eventually accepted an enforceable undertaking instead.
APRA's role as a watchdog has been questioned this year at a powerful inquiry into financial sector misconduct, where it was asked why it had not launched more legal actions against pension firms that chose profits above customers. BLOW
Analysts at UBS AG, Macquarie Group MQG.AX and JPMorgan (NYSE:JPM) said there was a risk IOOF would need a management overhaul, as the position of the executives named by APRA was untenable.
"In our view this likely poses hurdles for those individuals not just in possible roles as trustees but also in management of IOOF," a JPMorgan analyst, Siddharth Parameswaran, said.
A IOOF spokeswoman did not return calls and an email from Reuters seeking comment on whether the officials would step down following APRA's move to disqualify them.
The regulator's move to ban the five executives comes as a major blow for the wealth manager, Australia's second-largest, that is already in the midst of a restructuring brought on by scrutiny of its business model in the wake of the inquiry.
Lawyers leading the inquiry in September said IOOF had broken superannuation laws by using pension money belonging to its customers to reimburse for wrongful losses. shares logged their biggest ever daily fall on Friday, in a slightly positive wider market .AXJO .
ANZ shares were up 0.18 percent.
ANZ agreed to sell its OnePath Pensions and Investments business to IOOF in 2017, but for the deal to go ahead, ANZ needed to form a view that the sale would be in the best interests of customers. the significance of APRA's action, we will assess the various options available to us while we seek urgent information from both IOOF and APRA," ANZ Deputy CEO Alexis George said.
($1 = 1.3831 Australian dollars)