NAB (ASX: NAB) faces a potential fine of up to $10 billion, how will the share price react?

NAB is one of the four largest financial institutions in Australia in terms of market capitalisation, earnings and customers. However, in 2018, it was Australia’s largest lender to businesses and has operations in wealth management and residential lending. It also operates the online-only Ubank.

Who Is Fining NAB?

Australian Securities and Investments Commission (ASIC) announced yesterday it is alleging that the bank has broken the law more than 10,000 times, which means it could face a maximum  possible penalty of up to $10 billion.

Two of the main issues that ASIC is launching legal proceedings about is that NAB was charging fees for no service and that NAB issued false/misleading fee disclosure statements (FDS) that didn’t reflect the services given & fees paid by customers.

Between 2009 and 2018 NAB received over $650 million in ongoing service fees and NAB has stated it has provisioned more than $2 billion for customer related remediation across all of its advice licensees.

However, it is also ASIC’s case that NAB engaged in unconscionable conduct from at least May 2018 by continuing to charge ongoing service fees to certain customers, but didn’t stop charging fees until 4 February 2019.

There is a maximum fine of $250,000 per contravention of the law for charging fees for no service and for failing to provide a timely FDS. There is also a maximum fine of $1.7 million to $2.1 million per contravention for unconscionable conduct and for false or misleading representations.

ASIC Deputy Chair Daniel Crennan QC said: “Fees for No Service misconduct has been widespread and is subject to ongoing ASIC regulatory responses including investigations and enforcement actions. This widespread misconduct was examined in some detail by the Financial Services Royal Commission. ASIC views these instances of misconduct as systematic failures, unfair to customers including those that are more vulnerable. 

When the Fees for No Service misconduct is coupled with Fees Disclosure Statements inadequacies or failings, customers are potentially placed in a more disadvantageous position. The customer may not therefore have been provided with the opportunity to know whether they have received the services for which they have paid or the amount of fees charged to them.”

It’s tough timing for NAB because the annual general meeting (AGM) is today, so it could be a little feisty like the Westpac (ASX: WBC) AGM was.