NAB CEO Andrew Thorburn says the bank did not act honourably but was not guilty of criminal acts in its wealth and superannuation arms, after another punishing day at the Hayne royal commission.
“We do not believe they are criminal acts,” Mr Thorburn said. “ASIC has made some claims against us that they suspect we have had some breaches and those are unresolved. They are suspected and not proven.”
“The point we are making is that we do not believe they are criminal breaches and we certainly do not believe they are criminal acts.”
Mr Thorburn acknowledged the bank did not act honourably following a third day of evidence from the chairman of its superannuation trustee Nicole Smith, where it was revealed the bank was being investigated for more than 100 breaches of the law.
The message from the top was pitched at protecting the $4 billion in value that has been ascribed to the bank’s wealth arm that it put up for sale in May. NAB shares were unaffected by the furore gaining 28¢ or 1.1 per cent to $28.01
Part of that includes the $76.3 billion in super managed by NAB and overseen by NAB’s trustee company NULIS including the lucrative staff super funds of BHP, South32, Amcor and Carlton & United Breweries.
100 potential breaches
Speculation that the bank may be facing more than 100 criminal charges reached fever pitch Thursday when documents revealed the bank did not report breaches of its licence to ASIC within 10 business days. Section 912D of the Corporations Act details the obligation to report breaches and carries criminal penalties.
The cache of controversial documents also included information that revealed that NAB persistently failed to report breaches to ASIC within the 10 day timeframe.
ASIC found that of the 110 breach reports submitted by the bank between 2011 and 2014 all fell outside the deadline.
The bank had been in negotiations with ASIC for more than two years over the repayment of plan service fees which the trustee had taken from the accounts of superannuation funds with no legal entitlement.
As recently as May this year some of NAB’s top executives including group legal counsel Sharon Cook were continuing to advance ways to minimise repayments to ASIC.
The bank announced a month ago it would refund all wrongly charged fees for no service to customers. The Australian Financial Review understands that Mr Thorburn made it clear he wanted the matter resolved immediately.
NAB’s inability to report breaches within 10 days was the subject of a briefing paper given to Mr Thorburn ahead of an April meeting with ASIC chairman James Shipton, where it was noted “ASIC will likely seek further engagement on this issue noting that NAB appears to be an outlier to the industry.”
Among the revelations from Thursday from NULIS chairman Nicole Smith were that she signed multiple statements she didn’t agree with and the bank’s repeated attempts to weasel out repaying customers for money it had no right to take.
Bid for secrecy backfires
The bad news for NAB began almost immediately on Thursday at the Hayne royal commission where NAB’s legal team bungled a bid to keep a cache of documents secret including correspondence with ASIC over the fees for no service scandal.
Commissioner Hayne rejected the bid in the name of transparency and the public interest.
“It is in the public interest that there be an open and transparent inquiry about how both the regulator and the regulated deal with the issue of remediation,” Commissioner Hayne said.
Among the seven pieces of evidence that NAB was attempting to keep out of the public sphere was an ASIC document titled “Outline of suspected offending by NAB Group” from October 2017.
It dealt with the bank’s involvement in charging fees for no service, plan service fees conduct and remediation of those wrongly charged fees.
Among the findings in the document were claims that the bank had received as many as 40 complaints from super fund members about being wrongly charged fees as far back as 2011.
After Hayne rejected NAB’s claim for legal and professional privilege, counsel assisting Michael Hodge, QC, detailed the chain of events that led to NAB’s ambit claim for secrecy.
Mr Hodge said NAB had been issued with a notice to produce documents relating to the fees for no service by July 9.
NAB did not produce the first set of documents in relation to that notice until more than ten days later on July 20 when it delivered 31 documents. It followed up with a further 500 documents and then dumped an additional 3000 documents on the royal commission last week.
However NAB withheld four documents that related to its discussions with ASIC over fees for no service and would not hand them to the commission until August 3.
Mr Hodge said the other three documents of the seven that were the subject of NAB’s legal professional privilege claim were never given to the commission.
“Unfortunately that particular matter of responding to your compulsory notice has contributed to some of the difficulties that the NAB has faced in dealing with some of these confidentiality matters,” Mr Hodge said.
Among the issues the documents explore is NAB’s attempts to introduce the concept of “fair value exchange”, where NAB argued that while it did not provide the services it charged customers for, the bank provided other services that may have been of equal value and therefore no compensation was needed.
‘We do not consider it acceptable’: ASIC
An email from ASIC on December 22, 2016 rejected the bid to minimise its offending as wholly inappropriate.
“We do not agree that the fair exchange of value concept you have described to us as a customer centric approach. We do not consider it acceptable or NAB to include such concept in its methodology for its current review,” the email read.
But NAB would continue to push the idea that it could find other services that met the definition of advice.
ASIC’s senior executive leader of financial services enforcement Tim Mullaly wrote to NAB’s chief legal counsel Sharon Cook on November 3, 2017 and warned her that this was not an acceptable approach.
“The most recent position NAB has put forward as the basis for its remediation approach in these matters is a concept of measuring ‘customer/adviser interaction’ or assessment of whether the ‘spirit’ of customer agreements was adhered to,” the letter reads.
“ASIC does not consider this approach is appropriate to replace the express commitments given by NAB to its customers in service agreements.”
A report from the bank’s own risk department found controls at the super fund were both “non-existent” and “overall ineffective”.