National Australia Bank Ltd (ASX: NAB) is going to be fined another $15 million because of its referral program, according to reporting by the BusinessInsider. This adds further pain with the COVID-19 difficulties.
NAB previously had an introducer referral program that rewarded people for referring potential customers. If the customer took out a loan then the referrer would get a commission.
The programme generated "a very large number of loans" worth billions of dollars. It operated from at least 2000.
The major bank admitted that it has engaged in conduct that broke the law 260 times. However, the judge said: "I have a nagging feeling of disquiet that the true picture of the extent of the problems with the programme has not been revealed because there was not a real regulatory desire to pursue a thorough investigation as to what in truth occurred."
It was noted in the judgement that were no requirements for introducers to be from particular industries aligned with the provision of credit activities or to have any particular qualifications or training. There were no uniform processes for the on-boarding of introducers and this was generally done by the individual bankers or the national referral partners (NRPs) and no consequences for non-compliance. There was no formal training for frontline bankers regarding the programme including on what information the introducer could provide.
It was also noted by the judge that the investigation by ASIC was very limited "as to the true scope of what has occurred during the relevant period and the significant reliance by ASIC on the internal work done by NAB in its investigations (by its officers or by a professional services firm it had engaged) as to where the problems were located within NAB and what went wrong."
The judge said the programmes at times resulted in the bank receiving information from documents about customers from financially interested third parties. At any one time there were at least hundreds of these untrained introducers. "What could possibly go wrong?" the judge said.
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The royal commission has been painful for NAB
This is just the latest financial pain for NAB from the royal commission.
When NAB reported its FY19 result it said that its cash earnings included $1.1 billion of additional after-tax charges for customer-related remediation, and it had $2 billion of provisions. In the FY20 half-year result it recognised $400 million of customer-related remediation costs.
NAB has recognised that it had previously done the wrong thing. It said: "An important part of earning trust involves making things right for customers who have been treated poorly in the past…We also need to make sustainable change to avoid the mistakes of the past and get it right for customers every time."
Reputations can be destroyed quickly in a process like the royal commission. Though it wasn't just NAB that suffered severe economic pain. Many other financial businesses were dragged through the mud during the Hayne royal commission including Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ), Suncorp Group Ltd (ASX: SUN) and Insurance Australia Group Ltd (ASX: IAG).
