ASIC has commenced civil penalty proceedings in the Federal Court against NAB and is seeking findings of several thousand contraventions of the ASIC Act and the Corporations Act.
In a statement, ASIC alleged that from December 2013 to February 2019, 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 (AFSL) holder to act efficiently, honestly and fairly.
ASIC noted that 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 received more than $650 million in ongoing service fees from 2009 to 2018. The major bank has stated that it has provisioned more than $2 billion for Fee for No Service remediation across all of its advice licensees.
ASIC also alleged that NAB engaged in unconscionable conduct from at least May 2018 by continuing to charge ongoing service fees to certain customers 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, NAB did not stop charging fees to its customers until 4 February 2019.
The corporate regulator is seeking declarations, pecuniary penalties and compliance orders from the Federal Court to prevent similar contraventions occurring in the future.
“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,” said ASIC deputy chair Daniel Crennan QC.
“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,” Mr Crennan continued.
“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.”
NAB assessing allegations
NAB subsequently issued a statement acknowledging the proceedings, saying it will “assess the allegations” in detail before deciding on its course of action.
“We take this action seriously and will now carefully assess the allegations. We will continue to work co-operatively and constructively with ASIC to deal with this issue,” the bank’s chief legal and commercial counsel, Sharon 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.”
Ms Cook continued: “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.”
According to NAB, improved guidance and staff training about service arrangements and fee disclosures has already been rolled out, and its fee disclosure statement production has been centralised to allow for better monitoring and supervision.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.