The peak financial regulator has been criticised over a controversial decision to hire a senior lawyer from the ranks of troubled wealth manager AMP, which has been battling a series of scandals over the past year.

APRA chairman Wayne Byres accused of having a tin ear. Louie Douvis

The Sydney Morning Herald and The Age can reveal that the Australian Prudential Regulation Authority will have to wait six months for its new deputy legal counsel, Lucinda McCann, as she serves out a six-month notice period at AMP. Ms McCann currently serves as general counsel of AMP's scandal-plagued Australian Wealth Management and Bank Legal division, which houses the company's problematic financial advice business.

The revelation of her appointment comes days after APRA and its chairman Wayne Byres were accused of having a tin ear after the release of a Capability Review that raised issues about the regulator's own culture. The review made a series of recommendations, some of which Mr Byres has backed away from.

It is absolutely inappropriate. Former competition regulator, Alan Fels

They included that the prudential regulator do more intensive CBA-style governance and culture reviews of regulated entities, and gain powers to veto the appointment of directors and executives.

Kenneth Hayne, who spearheaded the royal commission into the financial services sector, this week waded in and publicly backed all the recommendations in the APRA capability review, particularly the CBA-style reviews.

It was Commissioner Hayne’s first public comment since his final report was released in February.

Duty became the watchword of Commissioner Kenneth Hayne. Brook Mitchell

Allan Fels, a former top competition regulator and seasoned public servant criticised the appointment. "It is absolutely inappropriate," he said. Mr Fels said he was surprised APRA would appoint someone from an entity not renowned for its law enforcement culture. “In addition, to take on such a role in an organisation that is so big will make it difficult to be excused on matters that affect AMP directly and indirectly,” he said.

Another former senior regulatory official, who asked not to be named, said he was shocked APRA would appoint someone from an organisation that arguably performed the worst at the royal commission.

“This won’t help APRA’s image problem,” he said. "A more appropriate response would have been to get the capability review and look at it in light of that to see if it is a smart and responsible thing to do. In other words, put such an important position on hold," he said.

APRA was also sent a series of questions, including how it proposed to manage any conflicts with AMP. Its response was brief. The regulator said it would attempt to manage any conflicts by ensuring Ms McCann would not be handling any issues involving AMP for a year after starting at APRA. It said the decision to appoint her was “an APRA decision” and that “APRA hires for capabilities and experience.” It said a start date had not yet been confirmed but the latest would be the end of the year.

Ms McCann declined to comment.

She joined AMP in 2016 as head of legal, financial products and solutions, where she was responsible for the legal side of super, life insurance and platforms. It was her second stint at AMP. She had previously worked in legal at AMP Capital services between 2006 and 2008.

AMP's former chairwoman Catherine Brenner left in the fallout from the royal commission. supplied

In January 2018 she was promoted to AMP’s general counsel for financial advice, working for the head of that division Jack Regan, who made headlines in April 2018 when he told the royal commission he had lost count how many times AMP had misled the corporate regulator in the fees for no services scandal.

Ms McCann’s resignation was quietly announced internally at AMP on June 24, including the six month notice period.

The appointment has caused serious concern among staff at AMP and APRA given the size of the role at the regulator and the perceived conflicts of interest of hiring a key executive from an organization that was attacked during the royal commission for systemic misconduct and blatant non-compliance.

The fallout of the royal commission revelations triggered myriad class actions against AMP, and led to the loss of half the company's board including its former chair Catherine Brenner, chief executive Craig Meller and chief legal counsel Brian Salter. It also caused a bloodbath in AMP's share price.

AMPs reputation was severely damaged during the royal commission after it was found to have deliberately gouged customers in a massive 'fee for no service' scandal, repeatedly lied to the regulator and had been slow to remediate customers as it put up roadblocks to delay any payout.

It is understood that Ms McCann has had recent dealings with ASIC over AMP customer remediation processes.

There is no suggestion Ms McCann has done anything wrong at AMP. But the appointment will reignite the debate about the revolving door between private sector executives and regulators.