ASIC tells NAB to lift game or risk license

Today the Australian Securities and Investments Commission told Australia's biggest bank to lift its game or risk losing its financial services license.

The NAB has been required to give enforceable undertakings to the regulator, aimed at improving its key systems and processes.

And ASIC's concerns extend well beyond currency trading to financial advice and services provided to ordinary customers.

Finance Correspondent Stephen Long.

STEPHEN LONG: Since the currency trading scandal broke in January, the regulators and investigators have been crawling all over NAB, and they've all found Australia's biggest bank wanting.

The latest broadside comes from the corporate regulator, the Australian Securities and Investments Commission.

Today ASIC released an enforceable undertaking, signed by NAB's Chief Executive, John Stewart, requiring the bank to improve key systems and controls.

According to Ian Rogers, who edits the specialist banking newsletter The Sheet, it's the second time NAB has had that dubious distinction.

IAN ROGERS: It's certainly unusual for a big bank to give an enforceable undertaking of this nature. The only other example that I can think of is another undertaking, also provided by National Australia Bank to ASIC, that was a couple of years ago, and in relation to the over-charging of fees to customers of MLC, which is the NAB's wealth management division.

STEPHEN LONG: ASIC's investigation was triggered by the currency trading floor, but it didn't stop there.

The corporate watchdog has identified wider concerns about the way the bank's financial services business was overseen and run and they extend beyond the arcane world of currency options and derivatives, to the kinds of services accessed by ordinary Australians like you and me, as Denis Orrock, General Manager of the banking research group Infochoice, explains.

DENIS ORROCK: Going through where their financial services license extends to, well it extends to mainstream, which is their branch structure, and that's where you or I may have interactions with NAB, it's where thousands of people do their banking every day, it's where people hold shares in NAB, through superannuation funds.

So there is definitely an exposure to, you'd hazard a guess, a vast majority of Australians to this action.

STEPHEN LONG: So they'll be scrutinising to see if there are breaches of National Australia Bank's financial services license in how it deals with customers across wealth management, superannuation, investments, managed funds, the kinds of things that ordinary Australians do?

DENIS ORROCK: Absolutely. I mean, it could go as far as any advice given to you by the bank teller in regards to a term deposit.

STEPHEN LONG: NAB is trying to play down the significance of ASIC's action, suggesting in a media statement today that the undertakings only relate to the currency trading scandal. But that was at odds with statements by ASIC. And analysts were divided on whether this was the end of the affair or the start of a whole new chapter.

Ian Rogers.

IAN ROGERS: The narrow interpretation, which the bank seems to favour, is that it's just more paper work for the bank. They simply have to send into the Securities Commission, on this occasion, the same pile of paperwork that they're going to be sending in to APRA, which is the banking regulator. But ASIC's undertaking, secured through National, does suggest that there are some wider issues with their general banking and consumer finance business.

STEPHEN LONG: Denis Orrock believes that NAB has been put on notice.

DENIS ORROCK: It is interesting that the ASIC announcement was reasonably open-ended in regards to what the consequences are going forward, discussions in regards to any breach of the Australian financial services license, well how far do we take that?

STEPHEN LONG: What could it imply for the National Australia Bank? What's the worst-case scenario?

DENIS ORROCK: Well, the worst-case scenario obviously is if they had any future breaches, losing that license which is a significant part of their business.

STEPHEN LONG: ASIC stressed that this worst-case scenario was highly unlikely, but it is requiring NAB to identify, record and inform the regulator about any future breaches of its financial services license.

It also wants better procedures for selecting, appointing, monitoring, and if necessary, removing staff, and while this is not spelt out, ASIC is no doubt hoping that culture of bullying which saw whistleblowers ignored and regulators' concerns dismissed is a thing of the past at the new NAB.

ASIC's investigation into whether employees involved in the currency trading scandal broke the law is continuing.

MARK COLVIN: Finance Correspondent Stephen Long.