Ken Henry: Remediation steps ‘dysfunctional’

Negotiating with ASIC over how customers who have been ripped off should be remediated is a ‘dysfunctional process’.

Ken Henry leaves the banking royal commission hearing in Melbourne yesterday. Picture: AAP

Negotiating with the corporate regulator over how customers who have been ripped off should be remediated is a “dysfunctional process” that slows down the payment of compensation, NAB chairman Ken Henry told the financial services royal commission.

Returning to the witness stand for a combative second session of evidence yesterday, Dr Henry also suggested the bank could fund ­aggrieved customers to sue it in the Federal Court to determine its liability for alleged rip-offs and rorts.

He said dealing with the corporate regulator was like playing the children’s game of hunt the thimble, and complained that the Australian Securities & Investments Commission would only tell the bank it was “warmer” or “colder” when negotiating remediation programs.

“I think our habit — and it is a habit — of going to ASIC and seeking to negotiate an outcome with ASIC, I think has led to elements of dysfunction, and it has certainly contributed to an insufficient pace of remediation for customers,” Dr Henry said.

“In other areas of the law, there are other approaches that are followed. I have wondered whether in this case NAB should not have, years ago, funded some of our customers to take us to this place, to this Federal Court, and get an outcome.”

“To sue NAB?” Ms Orr asked.

“Yes. It happens in other cases. As you know, I was for 10 years treasury portfolio secretary (and) the commissioner of taxation behaved in this way quite a lot.”

ASIC and the prudential regulator were informed by NAB’s management in December 2014 that the bank had been charging hundreds of thousands of super customers fees for services they never received, but yesterday Dr Henry confirmed that the first the board knew of the issue was in mid-2015.

After protracted negotiations with an increasingly angry ASIC, NAB and the regulator finally agreed on a remediation program in July this year — as the royal commission was in full swing.

However, it has yet to agree with ASIC on how to compensate customers who were with advisers who worked under NAB’s licence but not directly for the bank.

Dr Henry said the NAB board “all agree we should have done something differently”, rather than engage in protracted negotiations with ASIC.

“I wish that we had — that we had said to management — well, certainly two years ago, perhaps even earlier — ‘Enough is enough. Forget about negotiating with ASIC. Just do it’.”

Dr Henry said NAB management had not given the board enough information about the bank’s habit of charging customers fees for services they did not receive when the issue blew up within the group in 2015.

The board was not informed of the breaches, which involve two sets of fees, a plan service fee and an adviser service fee, until August that year, when it was presented with a report dealing with the bank’s engagement with regulators.

“ASIC is not yet satisfied that the control failures are limited to operational processes of the issuing entities,” the board was told in the report, tendered to the commission.

“They have requested that NAB scrutinise the operations of all AFSL entities within the group that provide personal advice to retail clients, to ascertain whether there has been adviser or advice ­licensee misconduct.”

Dr Henry said he believed this was the first time the board learned of the problem.

“But the report did not make it clear to the board that this was an issue that was being reported to the board for the first time,” Ms Orr said.

“Do you agree with that?”

Dr Henry replied: “Yes, I would agree with that, yes.”

Asked if it should have done so, he said: “Yes, I do think it should.”