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According to the Australian Securities and Investments Commission (ASIC), from December 2013 to February 2019, National Australia Bank Ltd (NAB) breached the ASIC Act and Corporations Act in relation to its financial planning services, as examined as part of the banking royal commission.
Specifically, ASIC alleged that NAB:
- engaged in fees for no service conduct by failing to provide ongoing financial planning services to a large number of customers while charging fees to those customers;
- failed to issue, or issued defective, fee disclosure statements (FDSs). ASIC alleges that the defective FDSs contained false or misleading representations in that they did not accurately describe the fees the customer paid and/or the services the customer actually received. The provision of the defective or out-of-time FDSs terminated the ongoing fee arrangements between NAB and its customers and it is ASIC’s case that, consequently, NAB was not lawfully entitled to continue to charge the fees;
- failed to establish and maintain compliance systems and processes to detect and prevent these failures; and
- contravened its overarching obligations as an Australian Financial Services Licence holder to act efficiently, honestly and fairly.
Moreover, ASIC alleged that NAB engaged in unconscionable conduct “from at least May 2018” by continuing to charge ongoing service fees to certain customers even when it knew that it had not delivered the services and had issued defective FDSs “or at least knew that there was a real risk that it had engaged in this conduct”.
However, ASIC noted that NAB did not stop charging fees to its customers until 4 February 2019.
The regulator has therefore commenced civil penalty proceedings in the Federal Court against NAB.
The maximum civil penalty for contraventions alleged against NAB are:
- $250,000 per contravention for breaches of s962P (charging ongoing fees after the termination of an ongoing fee arrangement) and s962S (failing to provide a timely FDS);
- $1.7 to $2.1 million maximum penalty (depending on the time period) per contravention for breaches of s12CB (unconscionable conduct) and s12DB (false or misleading representations).
NAB reportedly received more than $650 million in ongoing service fees from 2009 to 2018.
The major bank has already stated that it has provisioned more than $2 billion for fee for no service remediation across all of its advice licensees.
ASIC is now seeking declarations, pecuniary penalties and compliance orders from the Federal Court to prevent similar contraventions occurring in the future.
ASIC deputy chair Daniel Crennan QC commented: “Fees for no service misconduct has been widespread and is subject to ongoing ASIC regulatory responses, including investigations and enforcement actions. This widespread misconduct was examined in some detail by the financial services royal commission. ASIC views these instances of misconduct as systematic failures, unfair to customers, including those that are more vulnerable.
“When the fees for no service misconduct is coupled with fees disclosure statements inadequacies or failings, customers are potentially placed in a more disadvantageous position. The customer may not therefore have been provided with the opportunity to know whether they have received the services for which they have paid or the amount of fees charged to them.”
Sharon Cook, NAB’s chief legal and commercial counsel, said that the bank takes the action “seriously” and will “now carefully assess” the allegations.
“We will continue to work cooperatively and constructively with ASIC to deal with this issue,” Ms Cook said.
“We have already acknowledged failures where customers have paid fees for services they didn’t receive and have paid $37.8 million to 27,500 NAB FP clients. Remediation began in December 2018 and is expected to be completed by June 2020.
“From February 2019, NAB FP began switching off fees for all clients with ongoing fee arrangements and determined to refund all ongoing fees paid by clients after 31 May 2018 until the client entered into a new advice arrangement. From 1 April 2019, NAB began transitioning clients to 12-month advice contracts and ceased entering into any new ongoing fee arrangements.
“NAB Financial Planning has made changes to systems and controls and will continue to improve so we can service our clients better,” Ms Cook added.
According to NAB, these changes include:
- Improved guidance and training to employees in relation to ongoing service arrangements and fee disclosure statement requirements;
- Centralisation of the production of fee disclosure statements to “enable enhanced monitoring and supervision of compliance with fee disclosure statements requirements”.
ASIC’s action against NAB falls within ASIC’s Wealth Management Major Financial Institutions Portfolio, which focuses on the financial services conduct of Australia’s largest financial institutions (NAB, Westpac, CBA, ANZ, Macquarie and AMP) with respect to credit and retail lending, financial advice, fees for no service, superannuation trustees, insurance, unfair contract terms and other licensee obligations, and other conduct arising from the royal commission.