1.1 Background

In its response to the Commissions initial inquiries, NAB acknowledged that between 2013 and 2016, NAB bankers in the Greater Western Sydney area and in other parts of NSW, the ACT and Victoria, engaged in misconduct in connection with home loan applications submitted through the NAB Introducer Program. Anthony Waldron, the Executive General Manager for Broker Partnerships at NAB, Angus Gilfillan, the Executive General Manager, Consumer Lending, in the Customer Products and Services Division at NAB and Lynda Dean, Executive General Manager, Performance and Reward, gave evidence in relation to this case study.

1.2 Evidence

From 2013 to 2016, the NAB Introducer Program was (and at the time the evidence was given, remained) a program by which third parties (Introducers) received a commission payment for referring loan applications to NAB. Most loans referred to NAB by Introducers are home loans. The commission paid was (and remained) calculated as a percentage of the loan amount paid to the Introducer when the customers loan application is approved and drawn down. Commission payments to certain Introducers involved in the conduct examined in evidence totalled about $630,000 over four years, of which $488,000 was paid to a single Introducer.

The Introducer Program has been a profitable source of lending for NAB, resulting in more than $24 billion in loans between 2013 and 2016. At its peak, there were approximately 8,000 Introducers in the program. NABs internal policies during the period of the relevant conduct required Introducers to submit minimum volumes of home loan applications. As at the end of October 2015, the four Introducers involved in the conduct had provided to NAB $139.78 million in loans drawn down.

In September and October 2015, NAB received two anonymous calls from whistle-blowers. These whistle-blowers told NAB about certain practices alleged to have taken place in Greater Western Sydney branches of NAB, including alleged bribery. In April 2015, NAB had conducted a Comprehensive Assurance Review that uncovered a range of concerns related to Introducer files and sales incentive discrepancies in relation to one of the branches that was later found to be involved in the relevant conduct, but NABs full investigation did not commence until late October 2015.

In December 2015, KPMG was engaged to conduct an investigation in relation to the allegations. KPMGs initial review identified many issues both in respect of the NAB Introducer Program and in respect of controls that had been in place to prevent or deter fraud and other misconduct, including in respect of the loan origination and application process and income verification procedures for both personal loans and home loans. KPMG noted that NABs Forensic Team had identified: unapproved Introducers introducing new customers to the lending managers; loans being approved on the basis of potentially fraudulent documentation (such as forged pay slips); and bankers accepting payments from unapproved Introducers. KPMG said that there could be about $50 million of loans with ongoing serviceability issues.

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On 21 December 2015, NAB sent a letter to the Australian Securities and Investments Commission (ASIC), informing ASIC of its investigations.

By letter dated 3 February 2016, NAB notified ASIC of a significant breach pursuant to Section 912D of the Corporations Act 2001 (Cth) (the Corporations Act).

NAB continued to investigate potential misconduct by bankers and Introducers in 2016. Later that year, it became aware that the conduct was not confined to the Greater Western Sydney area. NAB established several projects to investigate the misconduct and identify causes. NABs investigations and the review conducted by KPMG found that NAB bankers had engaged in conduct including:

• applying signatures to consent forms that had the effect of triggering a commission payment to an Introducer in circumstances where this was not warranted;
• knowingly accepting falsified documentation in connection with home loan

applications;

• receiving payments from Introducers;
• failing to disclose personal relationships with Introducers;
• failing to meet face-to-face with customers; and
• accepting home loan applications and supporting documentation from

Introducers, rather than directly from the customer.

As a result of the investigations, 10 bankers were dismissed, 10 are no longer with NAB and 32 had internal consequences applied, such as reduction of their incentives. A number of the bankers involved in the conduct, including a number of those who were dismissed, were Branch Managers.

In some instances, the conduct identified resulted in loans being made by NAB that were later found to be unsuitable. Mr Waldron gave evidence of examples of customers who were potentially entitled to remediation, including one customer who provided all funds to complete their loan transaction to the relevant Introducer and attended the NAB branch to complete the relevant application forms accompanied by the Introducer. As part of NABs remediation program, it emerged that the information obtained about the customer was inaccurate because it failed to take into account that she had five dependants at the time of the loan application.

In another example provided by Mr Waldron, a customers general living expenses were assessed on the basis that the customer would rent out the property for which the loan was being obtained to purchase and a rental appraisal was used for that purpose. During a conversation with the customer as part of NABs remediation program, the customer told NAB that he did not recognise the rental appraisal and did not provide it to NAB, nor did he know who had. The customer also told NAB that he never received rental income from the property. As at early March 2018, NAB was still reviewing this loan, but was concerned that the rental income should not have been included in the serviceability calculations for the loan.

1.3 Questions

1. Explain how 52 NAB staff engaged in misconduct. [5 marks]

2. Explain what bank internal policy is violated and why. Name two examples of violations. [6 marks]

3. Name three affected bank stakeholders and explain consequences of the misconduct on their wellbeing. [9 marks]

4. Name five distinct actions that NAB Bank can undertake to avoid similar misconduct in the future. [5 marks]

5. Explain one distinct benefit for banks to work with introducers and other broker to originate loans? What is one likely consequence of introducers and other broker networks on bank competition? [5 marks]