ASIC’s case against NAB not only shows “the starting gun has been well and truly fired on litigation arising from the royal commission,” but also underscores the trend of ambiguous regulatory guidelines within the industry, according to a financial services lawyer.
ASIC has alleged that 16 NAB bankers accepted loan information and documentation from 25 unlicensed introducers in relation to nearly 300 loans under its Introducer Program.
“There’s a provision in the NCCP Act which prohibits NAB – and any other credit licensee – from ‘doing business’ with another person as part of its consumer lending business, if that person does not hold a credit licence or is otherwise authorised under the NCCP Act,” explained Jesse Vermiglio, partner for Holley Nethercote Commercial and Financial Services Lawyers.
“Under the Act, a person can refer a borrower to a lender without being licensed, provided the person is essentially only passing on the name and contact details of the prospective borrower. If the person is to receive payment for the referral, say a spotter’s fee, the person will also need to disclose this to the prospective borrower.”
ASIC’s investigation found NAB bankers had accepted information beyond the potential customers' name and contact details, including completed home loan applications, payslips, copies of customer identification documents and more -- some of which were subsequently found to have been false.
However, while ASIC accused NAB of breaching the law by doing business with unauthorised parties, there is a second tier to the regulator’s case.
“ASIC is also alleging that by accepting information beyond name and contact details from referrers, NAB breached another obligation heavily discussed during the royal commission: the obligation to act efficiently, honestly and fairly,” said Vermiglio.
“Before April 2019, this obligation was not a civil penalty provision, which meant ASIC could try to take action against the license – suspend or cancel it – but they could never ask the court to impose a civil penalty. The obligation was seen to buttress other contraventions as a bit of an add-on.
“However, after these recent changes in the law, we are seeing ASIC allege a breach of this obligation in most cases against licensees it takes to court.”
Principle-based legislation of this sort, requiring further clarity around implementation, is a topic that has been heavily discussed within the industry in the last several weeks, in the context of other ASIC cases as well as the best interests duty for mortgage brokers.
“These concepts are broad. There have been cases about what they mean, but it is still hard for an organisation to assess what ‘efficiently’ means, what ‘honestly’ means, and what ‘fairly’ means in terms of the services they provide,” said Vermiglio.
“You can appreciate how difficult this may well be for organisations to try to pin that down somehow.
“But given that the obligation has bigger teeth with this civil penalty being associated with it, ASIC has indicated it’s going to push harder on efficiently, honestly, and especially fairly. A lot of their cases now reflect that, and I’d expect to see more and more of it in the coming years.”
