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19-360MR ASIC takes court action against NAB for fees for no service and fee disclosure statement failures
ASIC has commenced civil penalty proceedings in the Federal Court against National Australia Bank Limited (NAB) and seeks findings of several thousand contraventions of the ASIC Act and the Corporations Act.
ASIC alleges that from December 2013 to February 2019, NAB:
- engaged in Fees for No Service Conduct by failing to provide ongoing financial planning services to a large number of customers while charging fees to those customers;
- failed to issue, or issued defective, fee disclosure statements (FDSs). ASIC alleges that the defective FDSs contained false or misleading representations in that they did not accurately describe the fees the customer paid and/or the services the customer actually received. The provision of the defective or out-of-time FDSs terminated the ongoing fee arrangements between NAB and its customers and it is ASIC’s case that consequently NAB was not lawfully entitled to continue to charge the fees;
- failed to establish and maintain compliance systems and processes to detect and prevent these failures; and
- contravened its overarching obligations as an Australian Financial Services licence holder to act efficiently, honestly and fairly.
It is also ASIC’s case that NAB engaged in unconscionable conduct from at least May 2018 by continuing to charge ongoing service fees to certain customers when it knew that it had not delivered the services and had issued defective FDSs or at least knew that there was a real risk that it had engaged in this conduct. However, NAB did not stop charging fees to its customers until 4 February 2019.
ASIC is seeking declarations, pecuniary penalties and compliance orders from the Federal Court to prevent similar contraventions occurring in the future.
‘Fees for No Service misconduct has been widespread and is subject to ongoing ASIC regulatory responses including investigations and enforcement actions. 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’ said ASIC Deputy Chair Daniel Crennan QC.
The maximum civil penalty for contraventions alleged against NAB are:
- $250,000 per contravention for breaches of s962P (charging ongoing fees after the termination of an ongoing fee arrangement) and s962S (failing to provide a timely FDS);
- $1.7 to $2.1 million maximum penalty (depending on the time period) per contravention for breaches of s12CB (unconscionable conduct) and s12DB (false or misleading representations).
NAB received more than $650 million in ongoing service fees from 2009 to 2018. NAB has stated that it has provisioned more than $2 billion for customer-related remediation including Fee for No Service remediation across all of its advice licensees.
Fees for No Service conduct and remediation of that conduct by NAB and other licensees was examined as part of the Financial Services Royal Commission. ASIC has been monitoring NAB’s (and other licensees’) remediation of its fees for no service failures with the last update on its progress provided on 11 March 2019 (19-051MR).
On 28 November 2019, ASIC released Report 636 - compliance with the fee disclosure statement and renewal notice obligations (19-325MR).
As noted by Report 636, FDSs are intended to help customers understand what services they have paid for, what services they have received and how much those services cost, and to enable them to make more informed decisions about whether their ongoing fee arrangements with their adviser should continue. Not issuing or issuing late or defective FDSs deprive customers of an opportunity to make those important decisions.
ASIC’s action against NAB falls within ASIC's Wealth Management Major Financial Institutions Portfolio. The Portfolio focuses on the financial services conduct of Australia's largest financial institutions (NAB, Westpac, CBA, ANZ, Macquarie and AMP) with respect to credit and retail lending, financial advice, fees for no service, superannuation trustees, insurance, unfair contract terms and other licensee obligations, and other conduct arising from the Financial Services Royal Commission.
The first case management hearing has been listed for Friday 7 February 2020.
Editor's note 2:
The first case management hearing has been adjourned to Tuesday 18 February 2020.
Editor's note 3:
The second case management hearing has been listed for Friday 24 April 2020.
Editor's note 4:
The second case management hearing has been adjourned to 9.30am on 7 August 2020.
Editor's note 5:
The second case management hearing has been adjourned to 9.30am on 11 September 2020.
Editor's note 6:
The second case management hearing has been adjourned to 9.30am on 5 February 2021.
Editor's note 7:
The matter has been listed for hearing on 4 – 18 June 2021 inclusive (noting that 14 June is a public holiday).
Editor's note 8:
The second case management hearing has been adjourned to 9.30am on 19 March 2021.
Editor's note 9:
The second case management hearing has been adjourned to 9.30am 23 April 2021.
Editor's note 10:
The second case management hearing has been adjourned to 9.30am 30 April 2021.
Editor's note 11:
The case management hearing listed for 9.30am 30 April 2021 has been vacated.
Editor's note 12:
The trial listed for 4 – 18 June 2021 has now been listed for 17-18 June 2021.
Editor's note 13: