The Federal Court of Australia handed down the penalty order on Thursday (26 August), requiring National Australia Bank (NAB) to pay $18.5 million in relation to breaches in connection with NAB’s financial planning business.
The penalty comes after the Australian Securities and Investments Commission (ASIC) took court action against NAB in December 2019, alleging that the bank had breached laws by charging fees for no service, and failing to issue (or issuing defective) fee disclosure statements (FDS).
The intention of an FDS is to help customers understand what services they have paid for, what services they have received, and how much those services cost. The act of not issuing, or issuing late or defective FDSs, can therefore deprive a customer of the opportunity to make important decisions.
According to ASIC, NAB engaged in this activity between December 2013 to February 2019, breaching the ASIC Act and Corporations Act in the process.
NAB had admitted to 445 breaches of Section 962P of the Corporations Act 2001, and 225 breaches of Section 962S.
The court concluded that NAB breached the law on numerous occasions when it:
- charged fees for personal advice without giving customers compliant fee disclosure statements;
- failed to provide fee disclosure statements to clients within the time required; and
- made false or misleading representations to clients in fee disclosure statements about the amount clients had paid for services and the services which clients had received.
The court also ruled that NAB had not established, or maintained, systems and procedures to identify whether services were provided in accordance with client service agreements, or that its fee disclosure statements were compliant, or that it was prohibited from charging service fees.
According to the court, NAB’s actions contravened its obligations as an Australian Financial Services Licence holder to act efficiently, honestly and fairly.
However, the bank’s move to make early admission of liability was acknowledged in the final court ruling.
It therefore rejected ASIC’s proposed $40-million penalty – and NAB’s proposed $15 million – instead settling on $18.5 million.
Justice Davies ruled: “Taking all matters into account, I am of the view that there should be a total penalty of $18.5 million. This penalty is higher than the penalty proposed by NAB, reflecting my view that the contravening conduct was not at the lower spectrum of seriousness and the greater weight that I give to specific deterrence.”
In her decision, Justice Davies stated that fee disclosure statement obligations are “specific consumer protection measures enacted for the safeguard of the interests of clients subject to ongoing fee arrangements” and that “they are strict obligations, underscoring the seriousness of the contravening conduct”.
NAB has also been ordered to pay ASIC’s costs.
This is the first penalty imposed by the court for fee disclosure statements failures under the Corporations Act 2001 (on November 28 2019, ASIC released Report 636 Compliance with the fee disclosure statement and renewal notice obligations).
Noting the court order, ASIC deputy chair Sarah Court said: “NAB’s system failures resulted in significant fee disclosure failures over an extended period. This caused harm to customers as the inaccurate information meant they couldn’t make informed decisions about the financial services they were paying for.
“The penalty of $18.5 million handed down to NAB is a timely reminder to financial services licensees to ensure they meet their obligations to their clients.
“Customers need to have confidence in their financial services providers that they will be charged correctly for the services they receive and given accurate and timely information.”
NAB acknowledged the $18.5-million penalty imposed, with NAB’s group executive, legal and commercial services, Sharon Cook, stating: “We sincerely apologise to those customers who were impacted by this issue.
“To address this issue, NAB stopped charging ongoing service fees to customers of its former NAB financial planning business in 2019.
“In 2020, we established a remediation program which has to date paid approximately $31 million to more than 15,000 customers in order to make things right,” Ms Cook said.