ASIC to banks, fess up and hand it back

Australian Securities and Investments Commission deputy chairman Daniel Crennan has warned financial institutions they need to stop dragging their heels on court actions and customer repayments on the back of a record penalty handed to National Australia Bank.

On Friday, Federal Court Justice David Yates imposed a $57.5 million penalty on NAB after its subsidiaries MLC Nominees and NULIS were found to have made false and misleading representations. The court also found the institutions failed to deliver their services efficiently, honestly and fairly as required under the Corporations Act.

Mr Crennan said the penalty was the largest imposed in a civil action instigated by the regulator and could have been larger if not for the bank's decision to co-operate and make early admissions.

"The important message from our perspective is that the larger entities represented by barristers, solicitors and internal counsel should consider using these strategies, it's in nobody's interest to have long and drawn-out court cases," he said.

NAB admitted to misleading close to half a million customers and charging them $72 million in advice fees where no advice was given over a period of six years.

Justice Yates said the bank's customers were "entitled to expect" the bank would provide them with accurate information about fees and charges. They would have been "justifiably angered" to learn what had occurred and had "been badly let down".

New penalties

From March 2019, misconduct of the kind exposed in the multibillion-dollar fees-for-no-service scandal will be subject to new and "crippling penalties" for breaches of section 912A of the Corporations Act.

"The penalties will get higher and higher," Mr Crennan said. "When this economic emergency is over, they should deter institutions from ignoring ongoing and systemic misconduct."

Mr Crennan drew comparisons with the process for criminal law sentencing, where co-operation is taken into account, and praised institutions that admitted liability and moved to the penalty phase. ASIC's chief enforcer was less complimentary, however about their ability to get the money back into the hands of customers.

"I think NAB and all the entities have a way to go, there is a lot of outstanding fees-for-no-service remediation to come. Remediation is a very important part of the process and during an economic crisis, it's even more acutely important," he said.

The arrival of COVID-19 had complicated the regulator's work but had not stopped it, Mr Crennan said, with the regulator able to get urgent injunctions and relief from the Federal Court when it needed it.

Mr Crennan also highlighted the guilty plea and subsequent three-year imprisonment penalty (to be served via home detention) imposed on insider trader Michael Ho last week, as evidence its litigation strategy was working, saying it was happy to fight cases were necessary.

"We are endeavouring to pick the best cases with the most chance of success and get them to trial," he said. "Our focus on litigation – which sometimes gets criticised – is not just focused on a subset on the regulatory population, it is focused on the entire regulated population."