National Australia Bank Ltd. (ASX: NAB) shares have lost 0.47% on Thursday after the Federal Court slapped the bank with an $18.5 million penalty.
NAB stocks were trading for $27.54 mid-afternoon as the Australian Securities and Investments Commission (ASIC) revealed it had won its landmark civil case.
The court found NAB has breached its responsibilities as an Australian financial services licence holder in failing to disclose fees to clients.
Specifically, the bank charged fees for personal financial advice without giving customers compliant disclosure statements.
When it did provide disclosures, it did not provide them within the required timeframe. And the disclosures contained "false or misleading" information about the charges and the services provided in return.
It was the first time ever a court has penalised a company for fee disclosure breaches under the Corporations Act.
"NAB's system failures resulted in significant fee disclosure failures over an extended period," said ASIC deputy chair Sarah Court.
"This caused harm to customers as the inaccurate information meant they couldn't make informed decisions about the financial services they were paying for."
'Customers need to have confidence'
Federal Court justice Jennifer Davies said fee disclosure statement obligations are "specific consumer protection measures enacted for the safeguard of the interests of clients".
"They are strict obligations, underscoring the seriousness of the contravening conduct."
As well as the massive fine, NAB was also ordered to pay ASIC's legal costs.
According to ASIC, the failures occurred because NAB didn't have systems or procedures to identify whether:
- Its services matched what was recorded in client agreements
- The fee disclosure statements were compliant
- The bank was banned from charging service fees
"Customers need to have confidence in their financial services providers that they will be charged correctly for the services they receive and given accurate and timely information," Court said.
"The penalty of $18.5 million handed down to NAB is a timely reminder to financial services licensees to ensure they meet their obligations to their clients."
The court took into account NAB's early admissions when determining the final penalty.
Despite the loss on Thursday, NAB shares have gained more than 6% in the past month and 20% so far this year.
