Customer comes last as NAB tries to put a cap on compo

Four months ago, the chairman of ASIC, James Shipton, met with the chief executive of NAB, Andrew Thorburn.

NAB CEO Andrew Thorburn. Picture: Bloomberg

Four months ago, as the royal commission into banking misconduct threw a bleak early winter over the financial services industry, the chairman of ASIC, James Shipton, met with the chief executive of National Australia Bank, Andrew Thorburn.

On the table at the April 26 meeting was one hefty subject: an investigation by the Australian Securities & Investments Commission into the compliance of banks and financial services companies reporting potential breaches of the law.

The new head of ASIC, Shipton was softly spoken, but his message to Thorburn was a sharp and unwelcome contrast to NAB’s public message of “customers first”.

Thorburn could not have been surprised as NAB had already received ASIC’s briefing planner for the meeting. It stated: “ASIC will likely seek further engagement with NAB about the extent of this issue noting that NAB appears to be an outlier to industry.”

The next day, April 27, ASIC wrote to NAB saying there appeared to be 110 breach reports from licensees within the group that were lodged between 2014-2017 outside the 10-day limit.

NAB’s correspondence with the regulator was released by the royal commission. Together with the mountain of ASIC material on the bank’s history of fees for no service, it provides a remarkable insight into NAB’s internal ­culture.

But it also revealed emails showing the chief executive directly involved in discussions regarding how NAB would respond to ASIC on the issue.

By the time Shipton was meeting with Thorburn in April it was a full three years since ASIC had written to NAB and the other big banks on July 5, 2015, notifying the industry it was investigating fees for no service.

The next three years would see NAB endlessly wrestling with ASIC in a way that gave at least the perception of obfuscation.

The royal commission would eventually state its own views. In submissions last Friday, counsel assisting Michael Hodge QC said NAB’s behaviour in relation to fees for no service — including fees charged to the dead — indicated a disregard for members of super funds, regulators and the law.

During the summary of evidence last Friday, the commission heard from counsel assisting that on October 16, 2016, NAB Wealth executive Paul Carter wrote to then group executive of the unit, Andrew Hagger, canvassing proposals for “opt-in” remediation.

With a response rate of 40-80 per cent, this would put compensation costs between $13.4m and $27.4m — compared with full remediation of $34.4m. Hagger described this as “a good basis” for a letter he was preparing.

Three days later on October 19, Hagger gave an update of likely full compensation to a group of NAB executives including Thorburn. He noted full compensation would be $34.3m.

On the same day, ASIC contacted NAB to say it was preparing to publish its report on fees for no service the following week.

On October 21, ASIC sent NAB a draft of the report, titled Fees for No Service. It set out compensation for NAB, but redacted details for other banks.

NAB corporate affairs executive Nathan Goonan sent an email the same day to Thorburn and other executives. He told them ASIC had asked for feedback; as drafted, the ASIC report showed NAB as just one in the pack rather than being called out as “an outlier”. NAB was identified in the ASIC report owing $16.2m.

Thorburn forwarded this email to Hagger and another executive with the request: “please discuss Monday when we meet”.

The all-important NAB full-year results would be released the following Thursday.

The next day, October 22, Hagger emailed another executive, Antony Cahill, about discussions on remediation, copying in Thorburn.

He added to the email: “We think I should call Greg Tanzer or Peter Kell (at ASIC) on Monday to advise the latest as to where we are up to on the PSF’s (plan service fees). All in the interests of openness and transparency.”

Cahill replied at 7.20pm that night: “As we discussed on Friday I trust your judgment on this one. I think the chief is probably keen to discuss on Monday to ensure Thursday goes as smoothly as possible.”

“The chief” was later identified in evidence as being Thorburn. The reference to Thursday was the date of NAB’s results.

In a subsequent phone call on October 24 with ASIC’s Greg Tanzer, Hagger did not disclose that he had just come from a meeting which approved steps to enable compensation of $34m to be paid.

It would be a further two weeks — and only after ASIC had published its report — before NAB told ASIC for the first time that the remediation was $34.6m.

The commission on Friday found that NAB had broken criminal laws in failing to ensure its subsidiary, the trustee Nulis Nominees, ran super funds for the benefit of members.

NAB had committed other crimes in its large number of failures to report serious licence breaches to ASIC on time, as well as civil breaches by engaging in misleading and deceptive conduct. Hodge said this misconduct was attributable, at least in part, “to the culture and governance practices within the NAB group”.

For Hagger and NAB general counsel Sharon Cook, there was no hiding from the commission’s censure.

“Mr Hagger, a member of the group leadership team, had the opportunity during his evidence before the commission to demonstrate insight into why it is problematic that NAB resisted for an extended period agreeing to ASIC’s proposal that it test whether licensees had provided the services that had been contracted … for the fees charged to customers. He did not demonstrate such insight. The approach adopted by Mr Hagger in his negotiations on behalf of NAB remained similar after Ms Cook assumed responsibility.”

On May 9 this year, ASIC’s financial services enforcement head Tim Mullally wrote to Cook at NAB advising that the bank’s proposals for remediation over fees for no service failed “to adequately reflect any insight into the seriousness of the suspected misconduct which … affects a substantial number of customers”.

The letter rejected NAB’s opt-in idea for remediation.

Hodge noted in closing submissions that “even now NAB has not agreed to test whether four of its five licensees have provided the services in exchange for fees charged. No witness from NAB demonstrated insight into why this situation is unacceptable.”

In a further observation that will have the attention of the NAB board chaired by Ken Henry, Hodge stated that the disparity between the levels of insight demonstrated by different entities suggests this was not a universal, industry-wide issue.

“However with respect to the identified entities, the evidence suggests that it is a problem that is reflective of the views of leaders within the organisation.”

Hodge said it was open to royal commissioner Kenneth Hayne to find that NAB’s conduct in relation to remediation of fees to customers departed from community standards and expectations. It was a stunning observation that left the clear impression that the customer had come not first, but last.