Frank Cicutto, NAB CEO at the time it rolled out the introducer program
A Federal Court judge has questioned the independence of an ASIC investigation into National Australia Bank’s scandal-plagued mortgage “spot and refer” introducer program.
In a judgment handed down in Sydney on Monday, Justice Michael Lee fined NAB A$15 million after the bank admitted that introducers and bankers involved in the program contravened national credit laws at least 260 times between August 2013 and July 2016.
The breaches related to NAB bankers in western Sydney who relied on financial information about borrowers that was supplied to the bank by unlicenced introducers.
NAB confirmed to the court that there were at least three cases where introducers had presented fraudulent payslips to the bank, which put borrowers at risk of securing loans that were inappropriate for their circumstances.
Under Australian credit laws bankers are required to deal directly with loan applicants to establish that a credit product is appropriate for them.
While the penalties issued by the court were within a range recommended by ASIC, Justice Lee said in the judgment he had “a nagging feeling of disquiet” over the regulator’s approach to investigating the introducer program.
“I must deal with the evidence adduced and put out of my mind speculation,” Justice Lee said in the judgement.
“I will fix penalties and make other orders on the basis of the issues as presented by the parties and what has been proved.
“But having said that, 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.”
NAB’s controversial spot and refer program was established in 2000 and originated thousands of home loans worth billions of dollars before it was euphemistically retired in 2019.
ASIC launched the court case in 2018 soon after evidence of alleged misconduct by NAB branch managers in western Sydney was heard by the Hayne Royal Commission.
Justice Lee noted in the judgment that thousands of introducers were involved in the program between 2013 and 2016, but that the court proceeding only concerned the conduct of 25 untrained introducers.
Although NAB admitted it engaged in conduct amounting to 260 contraventions, Justice Lee indicated there was a “high degree of artificiality” in assuming that he had been presented “with anything like of what actually occurred in relation to the programme”.
The judge said this was the result of deliberate regulatory and forensic choices made by ASIC.
“It is not for me to gainsay these decisions of ASIC,” Justice Lee said.
“It evidently has competing and heavy demands upon its finite resources.
“What became evident during the course of the hearing, however, is the very limited independent investigation 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.”
Justice Lee’s observations about ASIC’s approach to the introducer case appear to mirror Commissioner Hayne’s criticism of the regulator in the final report Financial Services Royal Commission.
“When deciding what to do in response to misconduct, ASIC’s starting point appears to have been: How can this be resolved by agreement?’,” Hayne states in the 2019 report of his royal commission.
“This cannot be the starting point for a conduct regulator.”