ASIC has commenced proceedings
On 17 December, (the day before the company's AGM), the Australian Securities and Investments Commission (ASIC) announced that it has commenced proceedings against National Australia Bank (NAB) in the Federal Court in connection with alleged 'fee for no service' conduct.
Allegations
[Note: The Concise Statement and Originating Process which set out ASIC's allegations in detail are available on the ASIC website.]
Broadly, ASIC alleges that during the period 17 December 2013 and 4 February 2019 NAB:
- did not provide ongoing financial planning services to some customers while charging fees to those customers in contravention of s962P of the Corporations Act 2001 (Cth) (Corporations Act)
- did not issue fee disclosure statements to certain clients in contravention of s 962S of the Corporations Act
- issued defective fee disclosure statements which did not accurately describe the fees the customer paid and/or the services the customer actually received in contravention of ss 12DB(1)(a) and (g) and 12DA of the Australian Securities and Investments Act 2001 (Cth) (the ASIC Act) and s 1041H of the Corporations Act
- did not have 'reasonably adequate' systems and controls in place to prevent the issues identified in contravention ss 912A(1)(a), (b), (c), (ca), (e) and (f) of the Corporations Act
ASIC further alleges that by continuing to charge ongoing service fees to certain customers during the period May 2018 to 4 February 2019 when it stopped charging fees, when NAB knew that it had not delivered the services and had issued defective FDSs/knew that there was a risk that this was the case, NAB engaged in unconscionable conduct in contravention of s 12CB of the ASIC Act 2001 (Cth).
Relief being sought
ASIC is seeking declarations, pecuniary penalties and compliance orders from the Federal Court to prevent similar contraventions occurring in the future.
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) and $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).
ASIC notes that NAB has said that it has provisioned more than $2 billion for customer-related remediation across all of its advice licensees.
NAB's response
The Australian quotes NAB Chief Legal Counsel Sharon Cook as saying that the lender takes ASIC's action 'seriously and will now carefully assess the allegations'.
Ms Cook reportedly went on to say that NAB will 'continue to work co-operatively and constructively with ASIC to deal with this issue. We have already acknowledged failures where customers have paid fees for services they didn’t receive and have paid $37.8m to 27,500 NAB Financial Planning clients. Remediation began in December 2018 and is expected to be completed by June 2020…NAB Financial Planning has made changes to systems and controls and will continue to improve so we can service our clients better.'
Not unique to the lender
In a statement, ASIC Deputy Chair Daniel Crennan commented that the alleged issues at NAB are not unique to the lender. 'Fees for no service misconduct has been widespread and is subject to ongoing ASIC regulatory responses including investigations and enforcement actions' Mr Crennan said.
He added that the this 'widespread misconduct was examined in some detail by the Financial Services Royal Commission'.
ASIC's latest update on reviews into fees for no service issues at AMP, ANZ, CBA, NAB and Westpac was released on 11 March (for a summary see: Governance News 13/03/2019 at p17).
Law reform?
To address fees for no service issues specifically, Commissioner Hayne recommended (recommendation 2.1) that the law should be amended to provide that ongoing fee arrangements (whenever made): must be renewed annually by the client; must record in writing each year the services that the client will be entitled to receive and the total of the fees that are to be charged; and may neither permit nor require payment of fees from any account held for or on behalf of the client except on the client’s express written authority to the entity that conducts that account given at, or immediately after, the latest renewal of the ongoing fee arrangement.
The government's roadmap for implementing the government's response to the Financial Services Royal Commission's recommendations indicates that it intends to consult on, and introduce legislation to implement the measure by 30 June 2020.
[Sources: ASIC media release 17/12/2019; Concise Statement; Originating Process; [registration required] The Australian 17/12/2019]
