How NAB kept regulator in dark over remediation

The bank’s executives struggled in the days before its 2016 profit report over the ‘fees for no service’ compensation

NAB chief executive Andrew Thorburn. Picture: Kym Smith

It was half past beer o’clock on the Friday before results day, but the mind of National Australia Bank spin doctor Nathan Goonan wasn’t on either beverages or the billions of dollars in profit the fourth-biggest bank in Australia was set to unveil within days.

Instead, Goonan’s mind was on a more sinister issue — the looming launch by the corporate regulator of a report into what has become one of its most important investigations: fees for no service.

After flicking through a draft of the Australian Securities & Investments Commission’s report, Goonan tapped out an email to the bank’s boss, Andrew Thorburn.

“At this stage, having seen the report, our thinking is to be reactive from a communication perspective given … NAB is seen as just one ‘in the pack’, rather than called out as an outlier,” Goonan emailed at 5.28pm on Friday, October 21, 2016.

Over the weekend and the days leading up to NAB’s announcement of a $6.2bn cash profit bonanza that coming Thursday, Goonan’s email sparked a series of interactions between NAB’s top brass, including chief executive Andrew Thorburn, head of wealth Andrew Hagger, and chief operating officer Andrew Cahill, that counsel assisting the financial services royal commission, Michael Hodge, has painted as a plot to ensure NAB stayed comfortably in “middle of the pack” when it came to public knowledge of how much money the bank had siphoned out of customers when no service was provided.

Under cross-examination at the commission yesterday, the former head of NAB’s wealth division, Andrew Hagger, stren­uously denied any such motive existed, and tried to paint the bank as having an “open and transparent” relationship with the regulator.

But over five of the past six days of hearings, the commission has painstakingly picked through the events of the days between Goonan’s email and Thursday, October 27, when both NAB’s result and ASIC’s report were shepherded into public view.

“I trust your judgment on this one,” Cahill told Hagger after the latter put the strategy to the executives on Saturday, October 22.

“I think the chief is probably keen to discuss on Monday to ensure Thursday goes as smoothly as possible,” Cahill said.

He was right — Thorburn was interested. “I am sure you are working through all the right detail and will be all over it,” Thorburn told the men on Sunday. “The main piece I would like to see is our proposed media response to what is likely to come out.”

NAB had been in conversations with ASIC for months over the amount of fees it had found were charged to its advice and super customers where no service was provided. The royal commission has been examining why it took so long for customers to be promised compensation for the rorts, and why the bank has been so reluctant to remediate savers.

In late 2014, NAB discovered it had charged customers an “adviser service fee” despite there being no adviser to offer their services. Then in 2015, the bank found it charged a so-called “plan service fee” for basic general advice services to superannuation customers who had no financial adviser who could provide those services.

There also remains the issue of the “adviser contribution fee” which the bank is painting as a “commission”, not a “fee”, which means that a service does not need to be provided to take the money.

NAB's Andrew Hagger leaves the royal commission into misconduct in the banking, superannuation and financial services industry. Picture: Aaron Francis for The Australian.

An email from NAB head of regulatory affairs Andrea Debenham, on Wednesday, October 19, 2016, told Mr Hagger and other executives that: “ASIC is about to release its report on incorrect charging of advice service fees” and the bank needed to consider the implications of its so-called Project Rio — the bank’s attempt to deal with ASIC’s potential sanctions — which had been calculating the bank’s potential remed­iation bill for its “plan service fee”.

Now that ASIC was believed to be factoring in the plan service fee into its gouge report, Ms Debenham asked executives whether NAB should “pre-emptively” tell the regulator all it knew. If NAB did this, it would increase its tally in the ASIC report from $16.9m to the estimated compensation at the time of $34m.

The next morning, on October 20, NAB corporate affairs adviser Chris Owens urged the bank to be upfront with the regulator, its customers and other stakeholders, noting it was “the best long-term strategy” for the bank. But the advice fell on deaf ears.

Goonan, who was acting executive general manager of corporate affairs, compiled a report into Project Rio.

It was attached to the email he sent Thorburn on the afternoon of Friday, October 21, and also recommended a “reactive” approach.

After running over the plan during Saturday telephone briefings with Cahill and wealth executive Paul Carter, Hagger wrote to Thorburn that the so-called reactive approach was “still our plan” but that in the interests of “openness and transparency” he would call ASIC commissioner Greg Tanzer to brief him on the plan service fees issue.

In the early morning of Tuesday, October 24, Hagger joined other members of the board of National Wealth Management Services, which is the administrator for NAB’s superannuation funds, in approving the full $34m whack.

As part of the same board resolution, NWMS also agreed to indemnify NAB’s super fund trustee company, NULIS, against the compensation cost. About 10.30am, Hagger stepped out of the meeting to call Tanzer.

After talking to Tanzer he sent a note of the conversation to Thorburn and other NAB execs. The note didn’t mention Hagger telling Tanzer about the new $34m figure, and yesterday in the stand he couldn’t remember doing so.

On the Friday night, after the dust of results and reports had settled, Hagger wondered to Carter when and how NAB should tell ASIC about the bigger compo bill.

“What a big week it was,” Hagger wrote in an email sent about 9.30 that evening. “There’s several ways to do it and there will need to be an education process with ASIC. Let’s compare notes.”

Documents tendered to the commission indicate NAB finally gave ASIC the new $34m figure the following week.