Specter of Criminal Charges Raised at Australian Bank Inquiry

(Bloomberg) -- National Australia Bank Ltd.’s wealth and pension units have joined the unenviable list of firms to have fallen foul of an government-appointed inquiry into misconduct in the country’s financial industry.

The prospect of criminal charges against National Australia over charging customers fees when no service was provided was raised during this week’s hearings. The Melbourne-based bank joined Commonwealth Bank of Australia as having extracted fees from accounts of clients who had died.

The inquiry has previously heard Westpac Banking Corp., Commonwealth Bank and wealth manager AMP Ltd. may have broken the law over their treatment of customers.

The hearings examined how advisers either employed by the bank or in networks it oversaw were conflicted between earning profits for the lender and representing the interests of the pension fund members they were advising.

“Bank staff are pressured to sell these financial products that are in the best interests of the bank, but not always in the best interests of their customers,’’ John Vaz, a senior lecturer in business and finance at Monash University, said in an interview. “Nobody should be surprised by this. The conflicts of interests with the banks and their wealth management units have been there since day one.”

Bad Behavior

The inquiry, which has already uncovered conduct at Australia’s banks including lying to regulators, falsifying documents and taking bribes, switched its focus this week to the country’s A$2.6 trillion ($1.9 trillion) pensions industry, which is home to the world’s fourth-biggest pot of retirement savings.

Documents given to the inquiry showed National Australia’s wealth unit and superannuation trustee allegedly failed to notify the corporate regulator in time on 110 breaches where fees were charged for no service. It was also accused of being too slow to compensate affected customers.

Kenneth Hayne, a retired judge who is overseeing the inquiry, on Wednesday asked Nicole Smith, the chairman of NAB’s pension trustee, if she considered whether collecting fees when no services were provided would expose the bank to criminal action. Smith responded that she didn’t.

Too Slow

While the bank’s Chief Executive Officer Andrew Thorburn took to social media Thursday to pledge the lender would do better, he denied bank staff had engaged in criminal acts.

“We were too slow to act. We didn’t pick things up quick enough, we didn’t remediate quickly enough,” Thorburn said on Twitter. “I’m sorry for that.”

Australia’s banks have been unwinding their investments in wealth units to concentrate on higher-returning businesses such as residential and business lending. National Australia plans to sell the majority of its wealth and financial advice unit by next year while Commonwealth Bank said in June it would spin off its asset management, wealth advisory and Aussie Home Loans mortgage broking units.

The changes are likely to reduce the conflicts of interest highlighted by the inquiry and allow bank management to concentrate on core areas like home loans, according to Shaw & Partners banking analyst Brett Le Mesurier. Other areas that need addressing include transparency on fees, education for advisers, simplified products and a way for consumers to compare funds, in the same way they can compare home loan rates, he said.

“It’s simple. The returns they got from managing these businesses were not high enough to compensate for the management time required to run a financial planning network,” Le Mesurier said. “The banks fundamentally misunderstood that.”

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