NAB disputes Ken Henry product claims

NAB challenges former chair Ken Henry’s assertions it’s selling products it will need to remediate in the future.

Former NAB chairman Ken Henry.

National Australia Bank has disputed claims by former chairman Ken Henry that the bank is selling products that it will need to remediate in the future.

Appearing at a hearing for the Parliamentary Joint Committee on Corporations and Financial Services’ inquiry into the auditing sector on Monday, NAB chief risk officer Sean Dooley said the bank was not misselling products, contradicting comments Dr Henry made privately to Ernst & Young (EY) consultants in June 2018.

“Dr Ken Henry advised EY in an interview in June 13, 2018 that he is confident there are products currently being sold now that they will need to remediate in the future,” Senator Deborah O’Neill said to Mr Dooley.

“He gave an example of SMSFs borrowing to invest in managed funds. What products were referred to and did NAB alert the regulator there was a problem with these products? When and was it considered a breach?,” Senator O’Neill asked.

Mr Dooley responded: “Thank you for the question. Firstly, I can’t offer an opinion on what Dr Henry was referring to because I wasn’t in the meeting. I am aware of the reference you refer to.

“Over the course of the last 12-18 months NAB has spent a lot of time reviewing our entire product framework… we’ve conducted product governance reviews, we’ve looked at all of our product suite to ensure our products are fit for purpose and appropriate for our customers.”

“What did you do regarding revelation of the issue that products are being sold that will need to be remediated?” Ms O’Neill persisted.

Mr Dooley said: “I’ve looked at that product and all of our products and I’m satisfied that our products are appropriately managed…. we have a process of reviewing all of our products on an ongoing basis… to my knowledge we are not misselling,” Mr Dooley replied.

EY partner Sarah Lowe, also appearing at the inquiry on Monday, confirmed she was present at the meeting.

Dr Henry’s comments, leaked by a whistleblower, sparked calls for the parliamentary inquiry into the relationship between the big banks and accounting firms amid concerns over conflicts of interest.

Dr Henry announced in February he was stepping down as NAB chairman after he was heavily criticised by the banking royal commission final report.

NAB defends auditor ties

Earlier, NAB chief financial officer Gary Lennon told parliamentarians the bank’s relationship with Ernst & Young did not compromise an independent prudential report the auditor carried out while also collecting $20 million as the lender’s external auditor.

Appearing at a hearing for the Parliamentary Joint Committee on Corporations and Financial Services’ inquiry into the auditing sector on Monday, Mr Lennon said EY’s recommendations stemming from the review of the bank’s risk management framework were “expansive, detailed and actionable”.

NAB has been under pressure over media reports suggesting its senior executives and board directors told EY of shortcomings in its risk frameworks, but that their statements were not included in the auditor’s final report.

NAB CFO Gary Lennon appears before parliamentarians. Picture: Kym Smith

READ MORE: Auditor risks soar | ‘Conflicted’: warning on big four auditors

EY’s review, which was a review of NAB’s risk management framework in accordance with prudential standard CPS 220 and which was handed to the Australian Prudential Regulation Authority, made 26 recommendations for NAB.

Parliament is investigating the auditing sector amid heightened concerns about conflicts of interest between audit firms and the companies they scrutinise. A series of high-profile corporate collapses around the globe has triggered an international overhaul of regulations policing the operations of major accounting firms.

Auditing firms are required to provide assurances that corporate financial statements give an accurate and fair view of a company’s financial position, liabilities, profits and losses.

However, the quality of audit work has been criticised by global regulators, amid concerns about conflicts of interest at the big four accountancies – PwC, KPMG, EY and Deloitte – as they focus more on consulting work.

On Monday, Mr Lennon said EY’s review of NAB was comprehensive, was not watered down, and resulted in strong recommendations to improve the bank’s business, on which it was now acting.

“EY had performed similar reviews for other major banks and as such offered valuable insight on industry practices,” Mr Lennon said.

“The appointment of EY was consistent with our independence policy, as the nature of the work was assurance related, and required by regulation. It was also consistent with APRA’s requirement that the work must be undertaken by operationally independent personnel,” he said.

“Noting that NAB’s internal audit team also meets the ‘operationally independent’ criteria, NAB chose to seek an external perspective. EY’s conclusion was that NAB needed to improve its risk management frameworks and their application. Its recommendations were expansive, detailed and actionable.”

Following NAB, the big four accounting firms will all make appearances at Monday’s hearing, including EY Oceania boss Tony Johnson, Deloitte chairman Tom Imbesi, KPMG head of audit Andrew Yates and PwC head of assurance Matt Graham.

Former ASIC chairman Greg Medcraft has questioned the conflicts of interest within the big four firms, suggesting audit engagements are being used as loss leaders for growth in other areas.

ASIC has since started publishing the individual percentage findings for when it considered a firm did not obtain reasonable assurance that a financial report was free from material misstatement, for each of the major audit firms, after they recently volunteered their results for the first time.