National Australia Bank and the Commonwealth Bank could face possible criminal charges over legal breaches in their superannuation arms following recommendations by the royal commission.
Preliminary findings from the royal commission released on Friday night also made strong criticisms of market heavyweights IOOF and AMP while there were few adverse findings made against the industry funds examined during the hearings earlier this month.
NAB came in for the harshest assessment by counsel assisting the commission Michael Hodge, QC, as he also panned the performance of the Australian Securities and Investments Commission and the Australian Prudential Regulatory Authority.
The submission questioned whether either regulator was up to the job of protecting consumers.
The recommended civil breaches against NAB cover alleged misconduct in relation to the grandfathering of commissions, charging dead customers fees, fee disclosures, fees for no service and failing to protect customers being moved into no-frills MySuper products. It is also accused of tardy breach reporting, which can be a criminal offence.
The findings also included a scathing assessment of top NAB executive Andrew Hagger who told the commission during his testimony that if the corporate regulator had asked “the right questions” he would have revealed full extent of NAB’s fees for no service issues.
“Mr Hagger’s evidence that he 'left the door open' for ASIC to ask the question reveals both a disrespect for the role of the regulator and a disregard for the gravity of the events in question,” the findings say.
NAB said it was considering the report and declined to comment.
Australian Super and Energy Super were all found to have not engaged in any misconduct, while HostPlus was alleged to have engaged in conduct falling below community standards by keeping inactive, low balance members in the fund.
The submissions to Commissioner Kenneth Hayne suggested there had been a string of breaches of the law by CBA. Outlining more than a dozen instances of potential "misconduct" by the bank in super, it pointed to failures to provide financial services efficiently and fairly, and a failure to put the interests of members over those of advisers, and the bank’s failure to move 13,000 super funds to the no-frills MySuper accounts by the deadline, which has been admitted by the bank.
CBA's trustee business may have also breached the Superannuation Industry (Supervision) Act for knowingly charging dead clients for advice and it may have made a possible criminal offence under the Corporations Act over its allegedly tardy breach reporting.
The bank also breached its legal obligations by describing some investment products as "commission free," then taking commissions and keeping them in the bank.
CBA was contacted for comment.
In regards to AMP, Mr Hodge said it was open for the commission to find that the wealth manager’s practice of only providing to its superannuation trustee limited information was not in the best interests of members. He also alleged AMP had made several civil breaches of the SIS Act in how it managed its superannuation funds.
Mr Hodge also said it was open for the commission to find that IOOF made several civil breaches over its handling of members superannuation accounts. He also said it was open for the commission to find that the "continued failure of IIML (IOOF Investment Management Ltd) and IOOF Holdings to understand their duties to superannuation members, and to take steps to properly recognise and manage conflicts of interest, constitutes conduct falling below community standards and expectations".
[ASIC] has struggled to date to act as an effective conduct regulator.Royal commission preliminary findings
The findings also criticised IOOF chief executive Chris Kelaher saying he lacked insight why IOOF's conduct was problematic and "the fundamental obligations of a trustee and the directors of a trustee".
ANZ Bank may have breached the Corporations Act when it sold super accounts through its branches, even though it knew there was a risk some customers would end up worse off by rolling their super into the bank's product, the submission said.
The closing submissions heavily criticised the performance of the two key watchdogs - the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission - in their approach to policing conduct in the super sector.
The evidence suggested that APRA was "reluctant to commence court proceeding and to take public enforcement action", pointing to its approach in dealing with the "intransigence of IOOF".
And it said there was questions about whether ASIC had "struggled to date to act as an effective conduct regulator", even saying the agency had suffered a "collapse of [its] regulatory authority" in its dealings with CBA over its flogging of super products through its branches.
NAB's dealings with ASIC over fees for no service, meanwhile, suggested "a lack of respect for the regulator and a lack of authority on the part of ASIC".
The royal commission attacked the regulator for failing to take court action in the super sector, noting that "a significant problem" with not doing so was that "no pecuniary penalty or other relief is obtained which would achieve specific and general deterrence".
ASIC's approach of pursuing enforceable undertakings (EUs) - negotiated settlements that do not involve litigation - may actually encourage wrongdoing, it suggested, noting that a company subject to an EU was not "required to disgorge the profits of its conduct, may not even be required to remediate customers for loss they have suffered... and does not attract the condemnation of the court and the attendant negative publicity."
It asked whether either of the regulators was "best placed to carry the responsibility to protect consumers".
Clancy Yeates writes on business specialising in financial services. Clancy is based in our Sydney newsroom.