ASIC slams NAB’s response to fee rip-off concerns

The corporate regulator has blasted National Australia Bank for failing to deal with allegations it committed criminal offences.

The corporate regulator has blasted the nation’s fourth-largest lender, National Australia Bank, for completely failing to deal with allegations it committed criminal offences and broke other laws in a “fee for no service” scandal, a cache of documents released by the financial services royal commission reveal.

In a May 9 letter that The Australian understands largely reflects the Australian Securities & Investments Commission’s current position, the regulator said proposals put forward by NAB to resolve the saga “fall well short of an acceptable resolution of ASIC’s concerns”.

Those concerns were outlined in an October “outline of suspected offending by the NAB group”, sent to the bank in October last year and also released by the royal commission yesterday.

The outline, which NAB tried to prevent being published by commissioner Kenneth Hayne, accuses NAB of at least three criminal offences and 19 civil breaches across half a dozen different courses of conduct relating to the scandal.

NAB’s suspected contraventions were “serious and systemic” and “demand a significant regulatory response”, ASIC said in the dossier.

The breaches detailed in the outline are in addition to ASIC’s allegation that NAB committed 110 counts of the criminal offence of failing to tell the regulator about a serious breach of its financial services licence within 10 days, which was revealed at the royal commission last week.

A full-scale ASIC investigation into NAB’s fee-for-no-service scandal remains on foot almost four years after NAB first told ASIC it may have charged customers fees without giving them anything in return — and up to 11 years since it started the rip-off.

NAB has paid or agreed to pay more than $100m in compensation to hundreds of thousands of victims of the fee-for-no-service scandal but the documents published by the commission reveal its unwillingness to fully confess to wrongdoing and compensate victims using ASIC’s preferred method has deeply aggravated the regulator.

In the May 9 letter, ASIC’s head of enforcement, Tim Mullaly, and the regulator’s head of financial adviser supervision, Joanna Bird, responded to letters from NAB over the previous two months.

The letter, addressed to NAB general counsel Sharon Cook and the then-chairman of the bank’s super trustee company NULIS, Nicole Smith, also dealt with a meeting on November 15 last year during which NAB was handed the outline of suspected offending.

“We convey ASIC’s disappointment with the time it has taken the NAB Group to fully communicate its position … and the nature of the proposals that have been put forward, which fall well short of an acceptable resolution,” the ASIC officers said.

“Your letter of 13 April 2018 fails to engage at all with the serious concerns outlined by ASIC in its position paper dated 27 October 2017.

“The proposed resolution set out in your letter fails to adequately reflect any insight into the seriousness of the suspected misconduct, which took place over an extended period of time and affects a substantial number of customers.”

They rejected NAB’s proposal to deal with one of its six fee-for-no-service scandals, relating to people charged a “plan service fee” that it wrongly levied on superannuants who moved from corporate fund MasterKey Corporate Super to personal fund MasterKey Personal Super.

The proposal, which was to pay remediation and for “consideration of a proposal to discontinue PSFs in July 2018” by NULIS’s board, “is unnecessarily complex and will delay remediation to members,” the ASIC officers said.

“ASIC does not consider it acceptable that members would be required to effectively opt in to the remediation scheme by completing an election form or that board consideration of a proposal to discontinue PSFs is delayed.

“The NAB Group ought to immediately discontinue PSFs and remediate all MKPS members.

“ASIC therefore rejects the proposal and is continuing the PSF investigation.”

In its outline, ASIC said NAB knew as early as 2010 that it was at risk of charging customers fees for services they never received.

One of its fee-for-no-service rip-offs could date as far back as 2008 because there had been no review of the specific issue since 2004, the regulator said.

The ASIC paper reveals the issue was raised as a “medium” risk with NAB’s executive risk and compliance committee as early as April 2013, along with “concern that this may be a systemic issue”.

Despite this, NAB executives “expected that this issue will resolve itself given FOFA [Future of Financial Advice] work underway”. ASIC said there were at least 40 complaints about the rip-off between 2012 and 2015.

“NAB’s failure to provide ongoing services while continuing to charge clients fees for those services was widespread and affected a large number of clients over a period of many years,” the regulator said. “Moreover, the failures have occurred across a number of NAB entities, meaning this was not an isolated problem, but a systemic failure of fundamental controls within the NAB group.”

ASIC accused NAB of at least three criminal violations of the ASIC Act by making false or misleading statements to its clients about two of the fees it charged, the “adviser service fee” and the “plan service fee”.

Nine of the alleged 19 civil breaches relate to the requirement that a financial services licensee deal “efficiently, honestly and fairly” with customers.

The bank is also accused of misleading and deceptive conduct.