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BFCSA: ASIC takes the gloves off in NAB brawl re fees-for-no-service case brought against the recalcitrant bank.

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ASIC takes the gloves off in NAB brawl

The Australian 12:00am April 1, 2019

Richard Gluyas


EXCLUSIVE  National Australia Bank collided with the Australian Securities & Investments Commission’s new, take-no-prisoners enforcement policy late last year, with the conduct regulator taking the unusual step of opposing mediation in the fees-for-no-service case brought against the recalcitrant bank.

Federal Court judge David Yates knocked back the regulator’s pitch, ordering mediation to take place next Monday, April 8.

However, ASIC’s unreported move — based on an assessment that there was little point in going through the charade of mediation — was an early marker of the “why not litigate” mantra adopted by deputy chairman and chief prosecutor Daniel Crennan QC.

The regulator’s frustration with NAB, which has mainly been directed at the old board and management regime led by chairman Ken Henry and chief executive Andrew Thorburn, spread to Canberra last week in the first of the major-bank CEO hearings since the Hayne royal commission released its final report last February.

When Labor MP and House economics committee deputy chairman Matt Thistlethwaite asked Phil Chronican why ASIC hadn’t simply prosecuted the bank over its fees-for-no-service scandal, the NAB interim chief executive responded: “Well, it was court-ordered mediation and they’re a model litigant.”

Last September, NAB became the first major bank taken to court by ASIC in relation to the industry-wide scandal, which is expected to cost the sector in excess of $2 billion.

The regulator alleges that Nulis, NAB’s superannuation trustee, wrongly deducted about $100 million in plan service fees from customers without providing any financial advice.

Mr Chronican said last week that the root cause of the fiasco was the industry’s “very poor” implementation of a new fee regime for the financial advice industry, replacing commissions with a fee-based framework.

“Then, as the issues unfolded, I don’t believe management in our organisation, and it’s probably true in others, fully appreciated the scale of what they were dealing with, and were coming from behind at every turn,” he said.

“I’m not yet aware of anyone intentionally (doing the wrong thing) at NAB, but if ASIC finds that we will have to deal with it.”

Despite Dr Henry and Mr Thorburn falling on their swords after a brutal take-down in royal commissioner Ken Hayne’s final report, NAB’s defence continues to distinguish between customers who were “linked” to an adviser and those who were “unlinked” because their old adviser had left and they were transitioning to a new one.

The bank says it became aware in 2015 that unlinked customers were being charged plan service fees.

By definition, they could not have received any financial advice.

The issue was reported to ASIC and the 220,000 customers were repaid $34m, including interest.

In July last year, NAB announced it would also refund about $80m, including interest, to 305,000 linked members, because the bank had not told them the fee could be turned off if they no longer wanted access to general advice.

A spokesman for the bank said on Friday that all customers who paid the plan service fee had now been fully remediated, at a total cost of $114m.

“The NAB board is disappointed that this matter was not dealt with quickly enough — and is determined to achieve a greater focus on customer outcomes, at every level of the organisation,” he said.

“We will continue to work cooperatively with ASIC to ensure the efficient conduct of these proceedings.”

NAB, though, is persisting with a defence that its behaviour in most cases was flawed but not illegal.

The bank’s position is that the customer contracts only promised an “an offer of advice”, not an actual statement of advice.

Pressed on the issue last week, Mr Chronican said: “The plan service fee was a fee charged to the members of these funds on the basis that they had access to an adviser.

“There was no formal contractual commitment to provide a statement of advice.

“Those monies have all now been fully refunded.”

Mr Thistlethwaite was nonplussed.

“So you have refunded both categories of customers but you are saying that the behaviour is not illegal?” he asked.

Mr Chronican responded that there was a “big difference” between returning a customer’s money and accepting that something was illegal.

“We refund customers’ fees and charges often, even when we are perfectly entitled to collect them,” he said.

NAB has made some admissions in ASIC’s legal action.

It “regrettably” concedes that some statements made to members should have been clearer, including the right to switch off the plan service fee.

According to NAB, this was misleading or deceptive and contravened section 1041H of the Corporations Act and section 12DA(1) of the ASIC Act.

This meant the bank also breached the obligation in section 912A(1)(c) of the Corporations Act to comply with the financial services laws.

However, NAB denies that any false or misleading representation was made under section 12DB of the ASIC Act.

NAB acknowledges that its disclosures “could have been clearer”, and had therefore made the decision to compensate members.

But in relation to the rest of ASIC’s allegations, the bank says it did not break the law in the way the regulator alleges.

Mr Chronican told the committee last week that the royal commission’s final report was right when it said there was a gap between “where we are, and where we need to be”.

“NAB’s internal reform program is bringing greater rigour, discipline and a stronger focus on customers,” he said. “This includes greater board oversight of customer outcomes.”


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