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Banking royal commission: NAB bosses resisted cuts to bonuses – live Banking royal commission: 'Commercial interests' trumped the interests of consumers, ANZ admits – live
(35 minutes later)
That concludes Forde’s evidence.
We now hear from Donna McKenna. McKenna sought financial advice in late 2016, due to impending tax changes on superannuation funds.
She sought advice from firm Henderson Maxwell, after seeing its chief executive, Sam Henderson, on television. Henderson had a show on Sky’s business channel and regularly wrote in the Australian Financial Review.
Some fairly stunning evidence here. ANZ failed to conduct any detailed investigation of Mr A, despite receiving the formal complaint in 2013 and being in possession of two earlier audits that raised concerns about Mr A’s behaviour.
Why? Because it wasn’t in Millennium3’s “commercial interests”.
When Forde is asked whether the misconduct should have been identified earlier, he says:
Yes, I accept that. I think there was enough information in the initial complaint in 2013 to warrant us, Millennium3, talking to those other customers at that time
Orr asks:
So ANZ elected not to take an investigation in 2013 or to contact any of the other customers who were in the same position as the customers who had made the complaint?
Forde:
It appears so, yes.
Orr asks why. Forde responds:
The only logical reason is that the commercial interests of Millennium3 took precedent
Orr:
Over the interests of the clients?
Forde:
Yeah, I think that’s fair.
The inquiry heard ANZ is still trying to work out how many of Mr A’s clients were affected. There are at least eight. But ANZ’s advice review team is looking at 103 customers during Mr A’s time at Millennium3.
It has made a referral to police over Mr A’s unauthorised withdrawal of about $224,000 from accounts between March 2011 and February 2012.
We’re getting to the crux of the Mr A story now.
ANZ, despite knowing for years that Mr A’s conduct was problematic, put the onus on his customers to come forward and complain about him.
The royal commission hears more details of allegations against Mr A, this time involving four clients in September 2013. It’s a similar story. Mr A advises them to invest in an apartment. He again uses their money through his own company to purchase the apartment. Mr A later tells his clients that their money is gone. Why? Because, despite promising his clients a quick return, he said the apartment has sat unsold on the market for two years.
The clients complained to Millennium3 and said they should be refunded the money. Millennium3’s response to the clients is ... interesting. The company tells Mr A’s clients:
It is unclear to us whether a loss has been suffered to you at all in respect to Mr A’s conduct
Orr asks Forde why it was “unclear”. He says he doesn’t know.
The answer irks Orr, who reminds Forde he has been put forward to answer questions about these events.
After Millennium3 sent this letter, in December 2013 and January 2014, it identified four other self-managed super funds who were listed as being unit holders in the unit trust, and were also customers of Mr A.
The evidence before ANZ, at this stage, is piling up.
That prompts this extraordinary exchange. Orr asks:
Did Millennium3 and ANZ attempt to contact those customers?
Forde:
Not to my knowledge.
Orr:
Did it investigate whether any of those clients had suffered any loss?
Forde:
Not to my knowledge.
Orr:
Why not, Mr Forde?
Forde:
I don’t know.
We learn that Mr A had told his clients he put their money in a unit trust, which would be used to purchase the property.We learn that Mr A had told his clients he put their money in a unit trust, which would be used to purchase the property.
That was a lie. Mr A instead put the money into a company, of which he was the sole director.That was a lie. Mr A instead put the money into a company, of which he was the sole director.
Now, onto Kieran Forde, from ANZ. He is being asked about five financial advisers, accused of forging customers signatures, misappropriating customer funds and misleading or deceiving customers.Now, onto Kieran Forde, from ANZ. He is being asked about five financial advisers, accused of forging customers signatures, misappropriating customer funds and misleading or deceiving customers.
The first financial adviser is known only as “Mr A”, who was with millennium3, a financial services arm of ANZ. Mr A was the subject of a number of negative audits, the first in February 2011. The first financial adviser is known only as “Mr A”, who was with Millennium3, a financial services arm of ANZ. Mr A was the subject of a number of negative audits, the first in February 2011.
Mr A gave advice to his clients that they should invest in a property in 2011. The property was a marina for sale. Mr A knew those involved in the sale of the property.Mr A gave advice to his clients that they should invest in a property in 2011. The property was a marina for sale. Mr A knew those involved in the sale of the property.
This is a significant breach for Mr A. Forde says he should not have been advising his clients to invest in property.This is a significant breach for Mr A. Forde says he should not have been advising his clients to invest in property.
But Mr A managed to convince five of his clients to invest in the property through their self-managed super funds.But Mr A managed to convince five of his clients to invest in the property through their self-managed super funds.
Mr A said they would buy it for $1.6m, using a $600,000 investment, and put it on the market for between $2.05m and $2.09m.Mr A said they would buy it for $1.6m, using a $600,000 investment, and put it on the market for between $2.05m and $2.09m.
Mr A got four of his clients to invest $100,000 each from their super funds. The fifth invested $200,000.Mr A got four of his clients to invest $100,000 each from their super funds. The fifth invested $200,000.
They then heard “very little” from Mr A about the property.They then heard “very little” from Mr A about the property.
Another audit occurred in November 2011, which also made worrying findings about his advice.Another audit occurred in November 2011, which also made worrying findings about his advice.
Rowena Orr, the senior counsel assisting, asks Forde whether Mr A was disciplined. Forde responds:Rowena Orr, the senior counsel assisting, asks Forde whether Mr A was disciplined. Forde responds:
Not that I’m aware ofNot that I’m aware of
Orr says:Orr says:
Why not?Why not?
Forde:Forde:
I don’t know.I don’t know.
We’re now hearing from Kieran Forde, head of wealth solutions and partnerships at ANZ.We’re now hearing from Kieran Forde, head of wealth solutions and partnerships at ANZ.
Before we get stuck into his evidence, let’s just quickly re-cap what we learned from NAB’s chief customer officer, Andrew Hagger, this morning.Before we get stuck into his evidence, let’s just quickly re-cap what we learned from NAB’s chief customer officer, Andrew Hagger, this morning.
Hagger was quizzed about the falsification of benefit nomination forms for superannuation. The forms set out NAB customers’ wishes on how their superannuation benefits should be distributed when they die.Hagger was quizzed about the falsification of benefit nomination forms for superannuation. The forms set out NAB customers’ wishes on how their superannuation benefits should be distributed when they die.
The royal commission heard it was “common practice” for NAB employees to falsely sign the forms as witnesses, despite not being present during client meetings. About 353 NAB employees were involved and 2,520 customers were affected.The royal commission heard it was “common practice” for NAB employees to falsely sign the forms as witnesses, despite not being present during client meetings. About 353 NAB employees were involved and 2,520 customers were affected.
The falsification potentially rendered the forms invalid, potentially derailing customers’ wishes for their estates.The falsification potentially rendered the forms invalid, potentially derailing customers’ wishes for their estates.
Bradley Meyn, a financial advisor, was the focus of the inquiry. The inquiry heard NAB took six months after firing Meyn to notify the corporate regulator of the breach. Hagger admitted it should have happened months earlier.Bradley Meyn, a financial advisor, was the focus of the inquiry. The inquiry heard NAB took six months after firing Meyn to notify the corporate regulator of the breach. Hagger admitted it should have happened months earlier.
The inquiry also heard NAB leaders resisted having their bonuses cut, saying it would drive some executives out of the bank and discourage future whistleblowers.The inquiry also heard NAB leaders resisted having their bonuses cut, saying it would drive some executives out of the bank and discourage future whistleblowers.
That concludes Hagger’s evidence. Orr is done with her examination and NAB’s lawyers have no questions for him.That concludes Hagger’s evidence. Orr is done with her examination and NAB’s lawyers have no questions for him.
ANZ will be up next. We’re having a short adjournment to get things in order at the bar table.ANZ will be up next. We’re having a short adjournment to get things in order at the bar table.
Hagger is talking about NAB’s customer response initiative, which is designed to proactively find areas where NAB has given inappropriate advice to customers. The bank has spent $50m on the customer response initiative.Hagger is talking about NAB’s customer response initiative, which is designed to proactively find areas where NAB has given inappropriate advice to customers. The bank has spent $50m on the customer response initiative.
We have found $19m worth of compensation that we have offered to clients, so we will continue with that processWe have found $19m worth of compensation that we have offered to clients, so we will continue with that process
He’s disputing a question from Orr implying that NAB had a culture of assuming nothing was wrong until a customer complained.He’s disputing a question from Orr implying that NAB had a culture of assuming nothing was wrong until a customer complained.
Hagger, the NAB chief customer officer, had a little difficulty calculating how much of his enormous bonus was cut over the falsification issue.Hagger, the NAB chief customer officer, had a little difficulty calculating how much of his enormous bonus was cut over the falsification issue.
If it were not for these events I would have received a higher incentive. And the way to calculate that would be 0.05 times $1.2m, so I think that might be $60,000.If it were not for these events I would have received a higher incentive. And the way to calculate that would be 0.05 times $1.2m, so I think that might be $60,000.
That left him with a measly $960,000 bonus, he said.That left him with a measly $960,000 bonus, he said.
Leaders within NAB voiced strong opposition to having their bonuses shaved over the falsification scandal. Tim Steele, the general manager of NAB financial planning, expressed concern about imposing consequences for leadership, in the form of shaving his bonus. Steele lost about 10% of his bonus because of the falsification of documents. He thought the reduction would be much higher when he opposed the punishment.Leaders within NAB voiced strong opposition to having their bonuses shaved over the falsification scandal. Tim Steele, the general manager of NAB financial planning, expressed concern about imposing consequences for leadership, in the form of shaving his bonus. Steele lost about 10% of his bonus because of the falsification of documents. He thought the reduction would be much higher when he opposed the punishment.
Greg Miller, the head of wealth advice at NAB, argued punishing leaders may discourage whistleblowers from coming forward. Miller met with Hagger about the issue. A file note of the meeting, written by Hagger, records the following:Greg Miller, the head of wealth advice at NAB, argued punishing leaders may discourage whistleblowers from coming forward. Miller met with Hagger about the issue. A file note of the meeting, written by Hagger, records the following:
Mr Miller was very much opposed to any implications for the wealth advice leadership team members and their direct reports. He said this was an important cultural symbol, and that what the organisation was really encouraging then, was for [beneficiary nominations]-style issues to be swept under the carpet in future. He said we risked key departures and all at a time when we would look to sell the advisory business, or parts of it, in the coming year.Mr Miller was very much opposed to any implications for the wealth advice leadership team members and their direct reports. He said this was an important cultural symbol, and that what the organisation was really encouraging then, was for [beneficiary nominations]-style issues to be swept under the carpet in future. He said we risked key departures and all at a time when we would look to sell the advisory business, or parts of it, in the coming year.
Hagger is asked what his response to the views was. He said:Hagger is asked what his response to the views was. He said:
My response to those views is that there’s an expression ‘everything is leadership’s fault’. It’s for leaders to set the tone. What we’ve done here is followed all the way through from Mr Meyn’s situation to finding a more entrenched practice that had occurred within the division.My response to those views is that there’s an expression ‘everything is leadership’s fault’. It’s for leaders to set the tone. What we’ve done here is followed all the way through from Mr Meyn’s situation to finding a more entrenched practice that had occurred within the division.
We are actually delighted with Tim Steele’s leadership through this process, because he didn’t waver going through the customer remediation, in going through the impacts and consequences for those individuals who had been involved in the practice, and in striking a proportionate response to this situation and making clear to the employees that this was wrong behaviour and here’s how it needs to be done.We are actually delighted with Tim Steele’s leadership through this process, because he didn’t waver going through the customer remediation, in going through the impacts and consequences for those individuals who had been involved in the practice, and in striking a proportionate response to this situation and making clear to the employees that this was wrong behaviour and here’s how it needs to be done.
ICYMI: 100s of NAB employees falsely witnessed more than 2500signatures, threatening customer’s estates… and executives who lost bonusesabout it complained directly to the C.E.O. #bankingRC pic.twitter.com/Gj5cjhOyPxICYMI: 100s of NAB employees falsely witnessed more than 2500signatures, threatening customer’s estates… and executives who lost bonusesabout it complained directly to the C.E.O. #bankingRC pic.twitter.com/Gj5cjhOyPx
Hagger is detailing the steps NAB took to give customers “peace of mind”. Just a quick reminder: the falsification of the forms potentially rendered customers’ estate planning – their wishes for what should happen with their superannuation when they die – invalid.Hagger is detailing the steps NAB took to give customers “peace of mind”. Just a quick reminder: the falsification of the forms potentially rendered customers’ estate planning – their wishes for what should happen with their superannuation when they die – invalid.
Hagger says NAB wrote to all 2,520 customers. The bank has had difficulty reaching about 30 people.Hagger says NAB wrote to all 2,520 customers. The bank has had difficulty reaching about 30 people.
He said in the vast majority of cases, customers simply re-signed the forms with valid witnesses.He said in the vast majority of cases, customers simply re-signed the forms with valid witnesses.
As things stand today, there are about 250 customers who have not yet returned those forms. Over time, we think that will whittle down to a much smaller number again ... That was our prime concern, that through our own sloppiness we had created this situation, which could affect the peace of mind of 2,520 customers.As things stand today, there are about 250 customers who have not yet returned those forms. Over time, we think that will whittle down to a much smaller number again ... That was our prime concern, that through our own sloppiness we had created this situation, which could affect the peace of mind of 2,520 customers.
The royal commission is considering NAB’s notification to the corporate regulator about the falsification of nomination forms. Asic was not notified until 15 June last year, about six months after Meyn, a financial advisor, was fired over the practice.
The bank has a legal obligation to report significant breaches to the corporate regulator.
Hagger says the delay was due to some “internal confusion” about whether to report Meyn as a compliance concern to Asic. Hagger acknowledges the report should have been made sooner.
It should have been made in March, knowing what we know now. It should have been quicker. In the evolution of a reporting protocols with Asic, there’s the balance to be struck between the timeliness of the report and the information Asic wants to see in the report.
The notification to Asic says:
The extent of this practice does give rise to the question whether it should have been anticipated and detected earlier.
Earlier, Orr asked whether that was not a narrow understanding of the problem, on NAB’s behalf. She says it was conduct that showed “showed a willingness on the part of NAB employees to attest to things that aren’t true”.
Hagger replies:
Our discussions with Asic aimed to be fulsome on the topic, not narrow.
NAB’s chief risk officer did not share the findings of his external report with Hagger but did share it with other areas of the bank. Hagger says:
I was surprised he did not share this with me. We talk maybe three times a week, the CRO and myself. He has enormous influence inside the bank, as he should. His answer to me was that actually this helped him keep watch in the progress that we were making.
The royal commission has heard NAB’s chief risk officer commissioned an external report on ethics within the bank, less than a year before it was revealed that Meyn was falsifying nomination forms.
The report was scathing of NAB’s approach. It found it was rare for anyone to be fired for ethical breaches. This created a lack of visible personal consequences for improper behaviour, removing any deterrent for NAB employees.
Orr asks whether Meyn’s behaviour was caused by NAB’s approach to its employees:
Was it caused by NAB’s failure to ensure its employees understood their ethical obligations?
Hagger replies:
No I don’t think so.
Just a note on the context of this evidence. The royal commission has heard that 353 NAB employees have been involved in incorrectly witnessing binding beneficiary nomination forms for superannuation funds. That could affect the validity of nominations made by 2,520 customers.
Essentially, NAB client service officers were witnessing forms relating to estate planning, despite not being present during meetings with clients. If the forms were invalid, it could mean the super and benefits could not be distributed according to the client’s wishes
It was a significant breach of the ethical and legal obligations of NAB workers.
The forms expressly stated they were not to be witnessed unless the signatory was present at the time of the client meeting.
Yet, the royal commission has just heard this was “common practice” at NAB. Orr asks Hagger whether that concerned him.
Hagger said:
Yes, it concerned me very much.
Orr pressed Hagger on the point:
If this was the common practice, what does it say about the ethical standards of NAB employees?
Hagger responds:
What it says is that in relation to the financial advice area, there was a failure of discipline. That’s what I told the board.
I believe that the client service officers and the advisers concerned thought they were taking a shortcut in the interest of the client, yet it’s very stark on the form that you either witness the form when you’re present, or you don’t.
He goes on to concede there was a failure of culture within NAB.
Orr is now asking why NAB didn’t report Meyn to the corporate regulator, Asic, earlier, given his conduct raised “serious compliance concerns”.
Hagger says Meyn was later reported to Asic. But he conceded it should have been done earlier.
Knowing what I know now, and really knowing what I knew from Asic on 1 April, he should have been reported at that time.
Hagger is being questioned about a NAB financial adviser, Bradley Meyn, and his deliberate falsification of client death benefit forms. Meyn had a colleague wrongly witness the form, after failing to get a proper witness when he met with his client.
The actions breached the bank’s code of conduct and regulatory obligations. They also placed customers at significant financial risk.
Meyn was fired. But NAB did not notify the Financial Planning Association (FPA), the relevant financial adviser professional body.
Rowena Orr says that simply allowed the financial adviser to go and work elsewhere, without consequence.
Hagger said he was focused on disciplining the employee internally.
I’ve reached the point that I have agreed that we should report cases to the FPA but I think I’m trying to put in perspective employment discipline, regulatory discipline, and financial professional association discipline.
And we’re off. Senior counsel assisting, Rowena Orr, is questioning NAB senior executive Andrew Hagger about the bank’s dealings with beneficiary nomination forms for superannuation funds.
One Nation senator Pauline Hanson spoke to the ABC a little earlier. You will remember that Hanson originally supported the idea of a royal commission but says she was talked out of it by the Turnbull government.
Hanson says she wants to see the banks pay for the royal commission, not taxpayers.
Hanson also wants the inquiry to be extended to liquidators and mortgage insurance.
It’s wrong, what happened. Until we get tough on crime, it will never stop. I believe this is the way of showing we are tough on it, you will pay for your that crime that you have done. And it’s not up to the taxpayer to fund this.
The royal commission is scheduled to begin at 9.45am.
Until then, let’s recap political developments overnight and this morning.
On Q&A last night, the former Turnbull government minister Fiona Nash admitted the Coalition got it wrong in not calling a banking royal commission sooner.
“I was in government at the time, I think we got it wrong,” Nash said. “I think we should have done it sooner.
“Australian people intrinsically want to see things be fair and I really do think we should have done that sooner than we did when I was in government.”
Her admission follows former deputy prime minister Barnaby Joyce’s, as well as that of cabinet minister Matt Canavan, who too admitted he was wrong.
The finance minister, Mathias Cormann, offered a more qualified concession. He said the government had genuinely believed there were enough inquiries into the banking sector, and that it was time for action. But he told Sky News that “with the benefit of hindsight” the inquiry should have been called earlier.
He said he had been surprised by the revelations but cautioned against rushing to judgment against the entire sector.
“You can’t make a blanket statement across the board,” Corman said. “Obviously the royal commission is working through what’s what and who’s done what, and to the extent there is wrongdoing, people have to have the book thrown at them.”
Hello, and welcome to another day at the financial services royal commission. It’s the National Australia Bank under the spotlight again today. We’re expecting senior NAB executive Andrew Hagger will continue his evidence, after admitting on Monday that NAB financial advisers engaged in improper or dishonest conduct.
The inquiry is currently looking at how NAB advisers incorrectly witnessed binding beneficiary nomination forms for superannuation funds. Their actions may have affected the validity of the forms for about 2,500 customers. Customer signatures were forged, customers were impersonated and unauthorised withdrawals were made from their accounts.
We’ll bring you live updates as Hagger’s evidence continues.
If this inquiry stays true to form, it’s sure to be another explosive day.