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In its recent submission to the Royal Commission into Misconduct into Banking, Superannuation and Financial Services Industry, following the first round of public hearings, National Australia Bank (NAB) addressed misconduct in its introducer program, conceding that there was a lack of accountability, “governance gaps”, over-reliance on banker behaviour, practices that “reduced the probability of misconduct coming to light” and a “lack of due diligence oversight”.
Appearing before the commission during its first round of public hearings, NAB’s executive general manager of growth and partnerships, Anthony Waldron, was questioned over the bank’s failure to adequately disclose instances of fraud in its introducer program prior to 2015.
Documents released to the commission, along with testimony from Mr Waldron, revealed that several NAB employees were allegedly “bribed” by third-party introducers.
Lack of accountability and “governance gaps”
In its submission to the commission, NAB admitted that “there was no designated ‘owner’ of the introducer program”.
“In relation to ownership and accountability across the bank, NAB had identified that although there was a person leading the introducer program in retail, that person was not sufficiently senior and was not accountable for the program across the whole bank,” NAB conceded.
It also claimed that it identified “governance gaps” during its internal review of its introducer program, making particular reference to “a lack of segregation of duties and a lack of systems to monitor and review introducers”.
The big four bank claimed that it has since implemented measures to address such governance failures and “increase the likelihood of detecting misconduct”, which include the appointment of an accountable person and the segregation of duties.
“In response, by October 2016, NAB had appointed a general manager with accountability for the introducer program across NAB, and broker partnerships became the ‘owner’ of the introducer program.
“The improved accountability across the bank will increase the likelihood of detecting misconduct in the introducer program in the future.
“In relation to the identified governance gaps, NAB has separated the onboarding and off-boarding processes for introducers and for bankers, respectively, meaning that onboarding and off-boarding of introducers are now handled by an introducer-specific process and team.”
NAB also noted that it has introduced business development managers that “sign on the introducers” to “ensure introducers understand their role and undertake checks to ensure NAB’s requirements are being met”.
Further, the bank stated that it has “employed a team to monitor and review introducers”, and also claimed that it now performs monthly “data matching reviews” to “identify possible conflicts of interest and other situations requiring investigation”.
Over-reliance on banker behaviour and “reduced probability” of fraud disclosure
NAB has also admitted that its introducer control processes were “overly reliant on banker behaviour”.
“This meant that where a banker or introducer was deliberately engaging in dishonest conduct, NAB’s controls were inadequate to pick up the misconduct.”
However, the lender claimed that by October 2017, it “commenced ‘triangulated reporting’ to monitor unusual changes in banker and introducer performance and behaviour”.
NAB noted that triangulated reporting serves as a “mechanism to monitor the relationship” between customers, bankers and introducers by linking “sudden changes in volumes between banker and introducer” and detecting “unusual loan performance”.
Moreover, NAB acknowledged that “certain practices within the introducer program reduced the probability of misconduct coming to light”, pointing to instances in which bankers accepted loan applications and supporting information without fulfilling NAB’s requirement to meet customers face-to-face.
The bank has also revealed in its submission that it is rolling out a “software-based fraud tool to detect fraudulent documentation used to support home lending applications”.
NAB also referred to its development of its “proprietary predictive banker conduct model”, which it claimed would be fully implemented by September 2018. The bank noted that the model assesses banker behaviour based on a “range of indicators or risk[s]”.
“Lack of due diligence oversight”
NAB has also admitted to a “lack of due diligence oversight of introducers generally” as well as “limited due diligence oversight performed by [national referral partners] on new sub-introducers”.
The major bank stated that it has taken steps to review and improve the practices of its national referral partners (NRPs).
“In relation to the lack of due diligence oversight by NRPs, NAB reviewed the onboarding and due diligence practices of the three NRPs with whom NAB works and requested improvements to their existing processes.”
[Related: NAB grilled over failures to disclose fraud]