In further fallout from the Royal Commission, it emerged that the bill to compensate customers who were charged fees for no service by our country’s major financial institutions could approach onebillion dollars. Already $200 million has been paid out. All four major banks, AMP and other large financial institutions are on the hook for compensation. But it was a letter sent to ASIC by the NAB, or more pertinently the discussion around it, that provided a more intuitive understanding of the finance sectors problems than gross fines and share price movements.
Profits Take a Hit
The effect of the Royal Commission was reflected in news that AMP’s half year net profit had fallen 74% from $445 million to $115 million. Meanwhile CBA booked almost $400 million in provisions for risk and compliance and regulatory costs (on top of its $700 million settlement over Austrac over money laundering) and revealed its Net profit declined by 6 per cent to $9.33bn.
Covering Up Fee for No Service
The fee for no service scandal deepened yesterday as the Royal Commission extracted evidence from two NAB executives about how the bank went to great lengths to keep charging hundreds of thousands of customers fees where little or no service was provided. Evidence was heard thatNAB also misled ASIC over its fee scandal. Nicole Smith, the former chair of NAB’s superannuation trustee, NULIS, admitted thatshe and NAB’s Andrew Hagger signed and sent a letter that misled ASIC on the nature of the “plan service fee” that was wrongly charged to some of its super fund members. The hearing was told that NULIS sought to "position" the incorrect charging of fees as an issue caused by unclear communication with members, rather than fees being charged for services that were not provided.
PR and Spin
NAB was also accused of delayingnotifying the corporate regulator of the full extent of what turned out to be a $120 million customer refund. In 2016, when ASIC was collating a report on the fees-for-no-service being charged by banks, NAB had reassessed its refunds of a certain type of fee so the full figure would not be included in the ASIC report. Internal bank emails showed that NAB hoped that by doing so refunds by the bank would be “in the middle of the pack” in ASIC’s report.
Heart of the Issue
NAB’s legal counsel, Kenneth Young, QC requested that correspondence sent by NAB to ASIC be kept secret, saying “there would be unnecessary public revelation of the various concessions and compromises that my client was prepared to put forward”. He argued that “the ability of organisations, ASIC and corporations, to engage in discussions with a view to agreeing upon appropriate enforcement steps may be hindered” - if they knew their secret talks might later be scrutinised by the public.
Obviously Commissioner Hayne did not agree, but this exchange goes to the heart of issues of transparency and secrecy – the much-criticised opaqueness of not only superannuation but the financial services industry in general.
The argument can be made that there is prudence in a certain level of confidentiality regarding businesses dealing with regulators. But playing this card at a Royal Commission that exists purely because of the sustained malfeasance that continued to occur whilst companies enjoyed such confidentiality seems to indicate a lack of recognition of the initial causes of the problem.
Murdering the metaphor – if that card is all the industry has in its hand, they should look at the Royal Commission as an opportunity for a re-deal.
Of course, Public Relations (PR) dictates that any business should try to prevent a negative "public revelation" so the attempted suppression of correspondence would be expected. However, one wonders whether there was at least reflection, let alone recognition of the broader parallels regarding this incident and the wider malaise affecting the sector.
It illustrates the difference between management (managing a problem) and leadership (fixing a problem).
Government Solves the Problem?
The problem of keeping correspondence with ASIC secret may be side-stepped with the news that ASIC officials will be “embedded” inside Australia’s five biggest financial institutions – Commonwealth Bank, Westpac, NAB, ANZ and AMP. The two year, $70m plan to improve monitoring of governance and compliance, was announced by Scott Morrison and Kelly O’Dwyer yesterday.
The corporate regulator will also establish a taskforce to identify failings inside large listed companies, and conduct on-site surveillance and investigations of those companies. It is hoped the changes will help ASIC change its “strategic direction” to focus on proactive enforcement.
Certainly, with an ASIC representative in-situ in the company, it should reduce the need for emails to ASIC, and thus, the need to keep such embarrassing emails secret.