ASIC has imposed additional licence conditions on the Australian financial services (AFS) licence of NAB's superannuation trustee, NULIS Nominees (Australia) Limited (NULIS), following breakdowns in internal procedures.

The conditions require NULIS to engage an ASIC-approved independent expert to assess and report on the adequacy of its compliance and risk management practices for its retail and wrap superannuation funds. NULIS has agreed to the conditions, and KPMG has been appointed as the independent expert.

The conditions were imposed on NULIS following ASIC's enquiries into a breach reports lodged by NAB’s wealth entities. The breaches involved a breakdown in risk management and communication procedures following the transfer in 2012 and 2013 of all members in a number of products to MLC MasterKey Business Super (MKBS) and MLC MasterKey Personal Super (MKPS), as well as changes made to the death and total and permanent disablement (TPD) insurance of MKBS and MKPS members. Approximately 400,000 members were impacted by the insurance changes.

System breakdowns included:

• inadequate disclosure of insurance changes to members;
• inadequate training for staff, and
• insurance policies not being updated.

As a result of the breakdowns, incorrect death and TPD insurance tests were applied to MKBS and MKPS members between May 2013 and July 2015. 

NAB’s wealth entities have identified that 10 members’ insurance claims were incorrectly assessed with approximately $1.6 million in members' claims underpaid or declined. NAB has compensated affected members a total of $1.8 million, including interest. 

In addition, NAB’s wealth entities identified that over 220,000 member accounts were incorrectly charged planned service fees (PSFs) of approximately $34.7 million between September 2012 and October 2016 in the MKPS and MKBS products. Fund members were charged PSFs for the provision of general advice in circumstances where no plan adviser had been appointed to provide such advice. ASIC's report Financial advice: Fees for no service issued in October 2016 (Rep 499) included part of this amount in the estimates of compensation to be paid to consumers for such failures. Since the release of that report, NAB has confirmed that it will compensate these fund members for the incorrect charge and have also confirmed the compensation to be paid. ASIC's inquiries into the PSF breaches are continuing.

The independent expert's review will consider, among other things NULIS’:

• risk management procedures;
• process for implementing product changes, disclosure and reporting to members, and
• procedures for managing conflicts of interest within NAB’s superannuation business, including the assessment of related party service providers.

The independent expert will report to ASIC and NULIS and provide recommendations as to any steps that should be taken by NULIS to ensure that its procedures are adequate.  NULIS is also required, under the licence conditions, to inform ASIC of any recommendations that it does not propose to implement and provide reasons.

ASIC Commissioner Peter Kell said, “The additional conditions imposed on NULIS' AFS licence reflect ASIC's priority of improving compliance and disclosure standards in the superannuation industry, including vertically integrated financial services licensees.”

ASIC acknowledges the cooperative approach taken by NAB and NULIS in this matter.

Background

On 1 July 2016, NAB restructured its superannuation business by transferring five superannuation funds (including the MKBS and MKPS products) into the MLC Super Fund. NULIS also became the trustee of the transferred funds.

ASIC is focussed on ensuring that AFS licensees maintain appropriate risk and compliance management frameworks. The handling of conflicts of interest within the financial services industry is an area of concern to ASIC and ASIC recently undertook a review of the practices of major industry participants in the funds management area. A summary of our findings appears in ASIC Report REP 474 Culture, conduct and conflicts in vertically integrated businesses in the funds management industry.

Editor's note 1:

The date for the completion of the final report for phase 1 has been varied from 28 February 2018 to 31 August 2018 to allow sufficient time for NULIS to fully implement all the changes to policy and procedures  recommended in the phase 1 interim report and for the independent expert to be able to measure and assess their operation.