On Wednesday (18 December), National Australia Bank (NAB) held its annual general meeting (AGM) – the first for newly appointed chief executive officer Ross McEwan and for Philip Chronican in his new role as chairman.
The AGM took place less than 24 hours after the financial services regulator, ASIC, announced that it had commenced civil penalty proceedings against the bank for alleged contraventions of the ASIC Act and the Corporations Act on “several thousand” occasions.
In his first address as chairman, Mr Chronican said it had been a “very challenging 12 months” for the bank, after the royal commission “demonstrated the gap between how we have been operating and how our customers, shareholders and the community expect us to operate”.
“We will not let time dull the impact of the royal commission, nor will we gloss over its findings.
“NAB has lost a lot of trust and significant changes to be made.”
He said: “I understand and acknowledge where NAB has fallen short.
“Now, as your chairman, I accept accountability for making sure we change and our customers, our people and our shareholders can all see the benefits of that change.”
NAB has ‘not always met 100%’ of AUSTRAC requirements
However, the chairman also revealed that while NAB maintains a “close and constructive” relationship with AUSTRAC, the bank knew it had “not always met 100 per cent of their requirements”.
This particularly relates to potential breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF), which both Westpac and Commonwealth Bank of Australia (CBA) have allegedly breached.
Mr Chronican told shareholders: “The status and age of outstanding risk issues is transparent, and customer impacts are better understood.
“On this, the board is acutely aware of the risk that our banking services could be used by those with criminal intent and takes its obligations under the various anti-money laundering, counter-terrorism financing and sanctions laws very seriously.
“We actively support law enforcement agencies in finding and stopping criminals from using the bank to pursue criminal activity.
“Inevitably, given the millions of customers we have and the millions of transactions we process, there will be times when our processes fall short.
“Where this happens, we let our regulator know and we move to fix the issues promptly.”
Indeed, the annual financial report for 2019 shows that the bank has reported “a number” of AML/CTF compliance breaches to relevant regulators and has responded to a number of requests from regulators requiring the production of documents and information.
According to NAB, identified issues include “certain weaknesses with the implementation of Know Your Customer requirements, other financial crime risks, as well as systems and process issues that impacted transaction monitoring and reporting in some specific areas”.
While the bank said that the potential outcome and total costs associated with the investigation and remediation process remain “uncertain”, they could be “significant”.
The financial report reads: “A negative outcome to any investigation or remediation process may adversely impact the group’s reputation and its business, financial position and results of operations.
“Further, given the large volume of transactions that the group processes, the undetected failure of internal AML/CTF controls, or the ineffective implementation or remediation of compliance issues, could result in a significant number of breaches of AML/CTF obligations and significant monetary penalties for the group.”
The financial report went on to state that NAB continues to keep AUSTRAC (and, where applicable, relevant foreign regulators) informed of its progress in resolving these issues, adding that it “will continue to cooperate with, and respond to queries from, such regulators”.
NAB has reportedly been working on a program to “uplift and strengthen” the group’s AML/CTF program and its implementation since 2016, which involves “significant investment in systems and personnel, ensuring an effective and efficient control environment, and uplifting compliance capability”.
The program also aims to “remediate specific compliance issues and weaknesses as they are identified”.
As this work progresses, NAB acknowledged that further issues may be identified and additional uplifting and strengthening may be required.
In his first address as NAB CEO, Ross McEwan told shareholders: “It is non-negotiable to manage financial and non-financial risks to protect our customers and your bank.
“As CEO, I will engage constructively with our regulators. Our interests are aligned. Regulators want safe, sound banks that look after customers. We want the same.
“I will quickly tell them when we have a problem. I will make every effort to ensure our relationships with regulators are transparent and constructive,” he said.
He concluded: “The foundations are there for NAB to be a leading bank in Australia and New Zealand.
“I see great opportunity in our business and take confidence from the people who stand behind it.”
The AML/CTF revelation comes less than a month after the major bank admitted to breaching the NCCP in more than 85 per cent of the 297 alleged contraventions regarding introducer-originated home loans. This came after the Australian Securities and Investments Commission commenced proceedings in the Federal Court against NAB over allegations that 16 bankers accepted loan information and documentation from 25 unlicensed introducers in relation to 297 mortgages.
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.