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The Australian Securities and Investment Commission (ASIC) isn't going easy on National Australia Bank (ASX: NAB) this holiday season.
The watchdog announced yesterday that it has taken the big four bank to court over alleged fees for no service (FFNS) conduct, uncovered initially during the Royal Commission into the banking and finance sector.
ASIC has cited thousands of instances of the bank allegedly breaching the law - including misleading and unconscionable conduct, meaning it potentially faces billions of dollars in fines.
ASIC also alleges NAB failed to issue fee disclosure statements (FDSs), failed to establish and maintain compliance systems, and contravened its overarching obligations as an Australian Financial Services licence holder.
Additionally, the watchdog alleges that the FDSs contained false or misleading representations in that they did not accurately describe the fees the customer paid and the services the customers actually received. As such, the watchdog's case is that NAB was not lawfully entitled to continue to charge the fees.
ASIC says NAB engaged in unconscionable conduct from at least May 2018 by continuing to charge ongoing fees to certain customers when it knew it had not delivered the services promised.
The watchdog says NAB did not stop charging fees to its customers until at least 4 February 2019.
ASIC deputy chair Daniel Crennan QC says the watchdog is seeking penalties and compliance orders from the Federal Court to ensure these types of contraventions do not continue happening.
"Fees for No Service misconduct has been widespread and is subject to ongoing ASIC regulatory responses including investigations and enforcement actions," says 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."
NAB is facing some serious fines in this instance, with a potential $250,000 fine per contravention for charging ongoing fees after the termination of an ongoing fee arrangement, and a $2.1 million maximum penalty per contravention of the unconscionable conduct and false or misleading representations laws.
NAB has already began to remediate customers for the allegations detailed by ASIC to the tune of $37.8 million to 27,500 financial planning customers so far.
Despite this NAB chief legal and commercial counsel Sharon Cook says the bank will work with ASIC to deal with the allegations.
"We take this action seriously and will now carefully asses the allegations," says Cook.
"We will continue to work co-operatively and constructively with ASIC to deal with this issue."
The bank says that from February 2019 it began switching off fees for all clients with ongoing fee arrangements and determined to refund all ongoing fees paid by clients after 31 May 2019 until the client entered into a new advice arrangement.
Clients of NAB have been transitioned to a 12-month advice contract instead of 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," says Cook.
The bank announced in November that its executive bonuses would be cut following poor performance in FY19 and the damage the fees for no service scandal has had on its reputation.
The move from NAB followed similar decisions made at Westpac (ASX: WBC) and ANZ (ASX: ANZ).
Shares in NAB are down 0.9 per cent to $25.24 per share at 10.27am AEDT.
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