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National Australia Bank will need more than remorse to satisfy Senate grilling

Facing the music: NAB wealth division chief Andrew Hagger. Photo: Louise Kennerley Facing the music: NAB wealth division chief Andrew Hagger. Photo: Louise Kennerley
National Australia Bank executives will need to pull a rabbit out of a hat when they front a Senate estimates hearing on Friday to explain serious misconduct in its financial planning division.

The allegations the bank has faced since Fairfax Media's expose on February 21 are so serious it has raised the interest of the corporate regulator ASIC, the prudential regulator APRA and reignited calls for a royal commission into the financial services sector.

For this reason, it will take nothing short of a commitment by the bank to improve its risk management systems, change its remuneration structure to make it less skewed towards bagging new clients and product sales and implement a transparent and independent compensation scheme.

The Senate hearing to be held in Melbourne on Friday will be chaired by senator Sam Dastyari who has said he wants the financial planning sector cleaned up.

Interestingly, NAB CEO Andrew Thorburn will be missing in action, instead leaving NAB Wealth boss Andrew Hagger to face the music.

Whatever Hagger says must be put in the context that this is being raised publicly because a NAB whistleblower felt so strongly about the culture, management and systems that a cache of documents were released to Fairfax Media. If the not, this might have remained buried and customers and the regulators none the wiser.

The bank has already tried to minimise the bad publicity by saying it isn't systemic and agreeing to strengthen the bank's whistleblower policies, agree to a "deeper review" of client files and quicker turnaround of matters and pass on to ASIC the reason why planners leave.

But more will be required given the gravity of the contents of the documents, including instances of forgery of customer signatures, doctoring of files, repeat compliance breaches, issues of "adequacy of resources being devoted to client complaint handling," and a decision to quietly terminate or "move on" 37 financial planners in the past two years "due to conflicts of interest, inappropriate advice, inappropriate practices or serious or repeat compliance breaches".

Quiet payments

NAB quietly paid 700 customers between $10 million and $15 million in compensation over five years. It was an opaque process with customers dealt with on a case by case basis. Settlement offers were on the proviso of a gag order and no admission of liability by NAB.

Since the first story was published on February 21, numerous NAB customers have come forward with details of inappropriate advice by advisers, yet the bank never contacted them. One victim, Veronica Coulston (a single mother who received inappropriate advice that put her on the brink of bankruptcy), will tell her story at the Senate hearing. She managed to get compensation but it took two years and only with the help of her friend, CBA whistleblower Jeff Morris, who will also speak at the Senate estimates hearing.

Former compliance officers and para planners have also provided names of planners who committed egregious crimes. The bank quietly ushered them out. In once case, the planner left in late 2012 and is currently working in another financial advisory business. In his case, a former employee says "NAB FP knew he was doing the wrong thing for the 10 years he worked for them." He said the planner did not believe in Statements of Advice (SOA), which is a criminal offence. "He would be tipped off to when his compliance and conduct audit was happening up to four weeks in advance. He would use this to request NAB FP para planning prepare one SOA on his behalf to supply as evidence of compliance."

There have also been a number of employees and former employees pleading that the spotlight now be turned on management. "Until the senior managers are named and shamed the bank will continue to chew through the bottom ranks as the body count rises as an accepted cost of doing business," says one. Another says, "You should get the 2000 film Boiler Room to get the real flavour; a number of us thought it captured the atmosphere and the pressure to perform perfectly."

Another came forward with documents relating to changes to the bank's remuneration structures in its financial planning division, effective from last November, which has a heavy bias to product sales and new clients rather than existing clients. The planner said the motive was to expose "systemic wrongs and bring to light senior management as the drivers of much that is wrong in the industry". It should be a wake up call to all the banks – and the union – to hear their calls.

1. “Operational risk continues to be rated RED. There are RED ratings for Systems and Infrastructure; Monitoring, Reporting and Oversight; and Payments and Process Management. (March 2014)”

2. “Regulatory risk is RED. Notwithstanding some positive outcomes and interactions there are too many breach Notifications and Events. March and early April 2014 was a busy period across both APRA and ASIC. ”

3. “NAB Wealth has encountered, and continues to encounter, cases of inappropriate advice and occasionally, rouge advisers.”

4. “We have suspended, terminated or ensured resignations of 31 NAB FP and aligned advisers over the past two years due to conflicts of interest, inappropriate advice, inappropriate practices or serious repeat compliance breaches. Many of these recorded annual sales well in excess of the average advisor.”

5. “... the existence of these cases mean there is the risk, should they come under political or media attention, that links could be made to the CBA situation.”

6. “... it is clear in the light of recent industry-wide investment that our monitoring and supervision systems are not market leading, and particular our technical capability to identify poor advice issues proactively is less advanced than we would like.”

7. “Regulatory Risk is now rated Red (Green last quarter) on the Dashboard due to the increasing number of reportable breaches, requests for extensions and exemptions to meeting regulatory compliance deadlines and a regulatory environment that indicates greater regulatory scrutiny and appetite to apply their investigative and punitive powers.”

Author: Adele Ferguson
Source: The Sydney Morning Herald


Last modified onThursday, 05 March 2015 22:58

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