The Australian Securities and Investments Commission (Asic) has started civil penalty proceedings against National Australia Bank (NAB) in the Federal Court in relation to alleged breaches concerning ongoing fee arrangements with clients of its financial planning arm.
Asic alleges that, from December 2013 to February 2019, NAB Financial Planning (FP) engaged in fees-for-no-service conduct by failing to provide ongoing financial planning services to many customers despite charging them fees for it.
It also said the bank failed to issue, or issued defective, fee disclosure statements (FDSs).
Asic claims the defective FDSs contained false or misleading representations, which “did not accurately describe the fees the customer paid and/or the services the customer actually received”.
The Aussie watchdog also said that NAB failed to “establish and maintain compliance systems and processes to detect and prevent these failures”; and breached its obligations to “act efficiently, honestly and fairly”.
Penalties
The maximum civil penalty for violations alleged against NAB is:
- A$250,000 per breach of charging ongoing fees after the termination of an ongoing fee arrangement and failing to provide a timely FDS; and
- A$1.7m to A$2.1m maximum penalty (depending on the time period) per breach of “unconscionable conduct” and “false or misleading representations”.
The bank received more than A$650m (£315m, $414m, €371m) in ongoing service fees from 2009 to 2018.
It has said it has set aside more than A$2bn for customer-related compensation including fee-for-no-service across all of its advice licensees – a rough calculation suggests that around 8,000 customer could have been affected.
NAB said: “We have already acknowledged failures where customers have paid fees for services they didn’t receive and have paid A$37.8m to 27,500 NAB FP clients.
“Remediation began in December 2018 and is expected to be completed by June 2020.”
Widespread misconduct
Asic alleges that from at least May 2018, NAB continued to charge ongoing service fees to certain customers when it knew it had not delivered the services.
It also reportedly “issued defective FDSs or at least knew that there was a real risk that it had engaged in this conduct”, and Asic claims NAB did not stop charging fees to its customers until 4 February 2019.
The regulator is seeking “declarations, pecuniary penalties and compliance orders” from the Federal Court to prevent similar events 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,” said Asic deputy chair Daniel Crennan
“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.”
Take action seriously
NAB Financial Planning said it has made changes to its systems and controls, which include:
- Improved guidance and training to employees in relation to ongoing service arrangements and fee disclosure statement requirements; and
- Centralisation of the production of fee disclosure statements to enable enhanced monitoring and supervision of compliance with fee disclosure statements requirements.
Sharon Cook, chief legal and commercial counsel at NAB, said: “We take this action seriously and will now carefully assess the allegations.
“We will continue to work cooperatively and constructively with Asic to deal with this issue.
“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.”
