NAB.005.021.0488

Australian Securities & Investments Commission

Form FS80Corporations Act 2001

s912DV.’

Notification by an AFS licensee of a significant breach of a licensee’s obligationsThe information you provide in this form should be a summary of the circumstance of the breach or likely breach. If ASIC requires more detail, we will request further detail from you. If there is insufficient space in any section of the form, you may submit annexures and attachments.. ...................................................T~|—WW^— ■ ■■■■! IIUTTI ......- --------------------------------------- " I ...................... ......... ............. ...... 1 ...................... ......

Lodgement detailsWho should ASIC contact if there is a query about this form?

ASIC registered agent number (if applicable) N/A

Firm / Organisation National Australia Bank Group

Contact name/position description Michelle Cossor, Head of Regulatory Affairs , Conduct

Telephone number (during business hours)

Email Address.a u)

Postal address Level 13, 700 Bourke St

Suburb/City Docklands VIC 3008

1 General information• ?

• I•• •

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1.1. Details of AFS licensee

AFS licensee name (as it appears on the licensee's AFSL certificate)

•

National Australia Bank Limited

AFS license number 230686

1.2. Contact details (Details of licensee staff member ASIC should contact in relation to this breach notification)

Name----- •---•------------------------------------------------------------------------------------------------- ----- -----------------------—

Position Title► -*—»—*--•#—----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Telephone number

Email address (if applicable)

Michelle Cossor

Head of Regulatory Affairs, Conduct

(cc: Reaulatorv.Affairs.Weaith@nab.com.au)

2 Details of breachTitle Invalid Binding Nomination Witness

NAB Group Event # 37336546

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2.1 Timing of breachA breach (Tick one box) H3 has occurred □ is likely to occur

Provide date or approximate date that breach occurred or is likely to occurDate breach occurred or is likely to occur 2

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Duration of the breach (if known)

•

Unknown - originally identified in November 2016.Investigation to determine duration currently underway.

Date the licensee first became aware of the breach or likely breach (Date licensee determined breach to be significant and reportable) 3 1 / o

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1 7

NAB.005.021.0489

General categoriesBreach relates to one or more of the following general categories:

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□ Other AFSL conditions (e.g. training or competency requirements). Please specify:

j □ Traditional trustee company services

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2.3. Financial services sectorFinancial services sector that the breach relates to:

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□ Superannuation.... . _ . _ __ . . _ .... ... . . . . , . . . . ... ... ... ... ... ... _ .. _ _ J __________________________ JL_ A .a JL. JJ.

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□ Other financial servicesPlease specify:

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2.4 Description of breach or likely breach (including how the breach was identified)________________________________________ , _.v. ... —— ..................... ... .................. —•**- ............................*......................................... ............................................................................. ............ .. A'v'

------------------—----------------------------- -------------------------- ------- * ”

Superannuation fund application forms typically contain a section in which the applicant can make a binding death benefit nomination.

The binding death benefit nomination options offered by the trustees of funds include:

« ’lapsing’ binding nominations - automatically lapse’ after 3 years by virtue of SIS Regulation 6.17A(7); and/or « 'non lapsing’ binding nominations - which have become common in recent years.

SIS Regulation 6.17A (6) requires that ‘lapsing’ binding nominations must be signed in the presence of two witnesses. There is no statutory witnessing requirement for ‘non lapsing’ binding nominations; however, the relevant forms typically require a separate signature by the applicant in the presence of two witnesses, who must each sign under a declaration, including a declaration that thewitness was present when the applicant signed.

In November 2016, National Australia Bank Limited’s (NABL’s) financial planning business, NAB Financial Planning (NAB FP), detected via a regular internal file review possible irregularities with the witnessing of a customer’s signature on a Non-lapsing Binding Death Nomination form (‘Form’). An investigation confirmed that a member of the adviser's support staff witnessed the customer’s signature, despite not being present at the customer appointment. The adviser’s employment with NAB FP was terminated for issues emanating from the identification of his incorrect witnessing of Forms and other matters. The circumstances surrounding his departure were outlined in our notification to ASIC of departed financial advisers on 5 June 2017.

In response NAB FP:

• developed a case study (using details of the event) and shared with managers across NAB FP to create awareness of this issue and remind staff of proper process.

• prompted managers to scrutinise the Forms as part of their regular internal file reviews.

In February 2017, NAB FP identified three further instances of only one witness (typically the adviser) being present when the customer signed the Form. This witness later gave the Form to the second witness to sign (typically a member of the support staff),and that second person signed the declaration despite not being present when the customer signed.

. » *|

By the end of March 2017, NAB FP had concerns that a total of 11 advisers, and a small number of support staff, had been involved in improper witnessing of Forms. Attention was directed to determining the number of customers potentially affected in order to undertake remediation (proper completion of new Forms), Given that it is not readily apparent that a Form has been improperly witnessed simply by reviewing it and due to the number of advisers identified at the time, it became apparent that determining the scale of customers impacted and the duration over which incorrect witnessing of Forms had occurred would require the assistance ofthe staff involved.

On 28 March 2017, as part of a business update, NAB FP communicated via teleconference the concerns regarding the improper witnessing of Forms to NAB FP staff and on 7 April 2017 the NAB FP network were emailed a summary of the teleconference update. During April 2017 a further 8 instances of improper witnessing of customer’s signatures were identified via self-reporting.

On 11 May 2017, NAB FP held a teleconference asking all staff to self-report by 31 May 2017 any known instances of invalid witnessing of Forms.

ASIC was informed of this matter on 18 May 2017 via telephone and in writing on the 19 May 2017 outlining that NAB FP had become aware of instances in the network where only one witness was present at the time of signing the Form. There were further discussions held between ASIC and NAB FP on 1 June 2017, during this meeting NAB FP stated it would be in a position to provide a further update in the coming weeks. As part of this event, NAB FP is also investigating if there are any other instances where formshave been incorrectly witnessed, signed or certified by customers or staff.

As at 13 June 2017, there was 325 staff members identified as having been involved in the incorrect witnessing of customer's signatures on the Forms. These staff members are employed across multiple roles within the NAB FP business including advisers and support staff. NAB FP is currently working through identifying the number of customers impacted and determining timelines forremediation activities required.

" _____________________________________________________________________________________ ______ _________________________________ !■■■■ — ■■■■■■■»■

2.5 Description of why breach is significant

Number or frequency of similar previous breaches

No similar previous breaches

If similar previous breaches have been reported, please provide date(s) reported.

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Impact of breach, or likely breach, on licensee's ability to provide the financial services covered by Its AFS license.

The licensee does not consider that the breach will have an impact on the licensee’s ability to provide the financial services covered by its AFS license. The licensee considers that it has appropriate and adequate resources to rectify the breach whilecontinuing to operate its financial services business.

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Extent to which breach or likely breach indicates the licensee’s compliance

This event does raise concerns about the adequacy of the licensee’s supervision and monitoring process in relation to completion of the Form. Although the licensee has j^H

2.8 Obligation breached by licensee

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arrangements are inadequate.

trained its staff and this type of conduct is difficult to anticipate and detect, the extent ofthis practice does give rise to the question w

hether it should have been anticipated and detected earlier.

NAB.005.021.0492

Section(s) of Corporations Act 2001: s 1041H, S 912A(1)(a),

AFS licence condition(s):

Other financial services law(s): s12DA ASIC Act

Other Commonwealth legislation as listed in Corporations Regulations 2001 - Regulation 7.6.02A:

1

. . . . . . . . . . . . ill. . . . . . . . . . .m<

3 Rectification of the breach■

3.1 Rectification by licensee

Has the breach or likely breach been rectified? (Tick one box) □Yes DNo Kiln progress

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Description of licensee's rectification of the breach (Including details of amended or additional disclosure; communications with affecte clients; compensation paid to dients/customers; timeframe for rectification of breach; engagement of external consultants; likely date to report update on rectification to ASIC; date copies of external consultant reports the licensee intends providing to ASIC will be available.)

Rectification strategy:• Communication to the NAB FP network detailing correct procedure for witnessing binding death nominations. Completed

23/05/2017• Work is currently underway to identify all advisers and staff in scope as incorrectly witnessing documents. Expected to be

completed by 30/06/2017.«• Identify the number of potentially impacted customers. Expected to be compfeted by 31/07/2017.• Engagement with the relevant stakeholders including trustees to determine in conjunction with the trustees as to what

rectification is required.

3.2 Licensee's preventative action

Has the licensee taken action to prevent a similar breach occurring? (Tick one box)□Yes ONo Bln progress

Description of the licensee's action to prevent similar breaches occurring (Including any review or update of existing policies and procedures; remedial training; monitoring programs; and/or any other changes to existing compliance measures.)

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Prevention strategy:• Specific consequence management has been created and communicated to the NAB FP network for this type of breach

Completed 30/06/2017.• Communication to the NAB FP network detailing correct procedure for witnessing binding death nominations and reiterating

no tolerance for non-compliance. Completed 23/05/2017• Ethics sessions conducted in Capability Days runs across the country in May and June. Completed 5/07/2017• Review of the Licensee Standards to explicitly state what is expected within regard to witnessing, certifying and signing

customer documents. Update to Licensee Standard Is scheduled for 1/7/2017• Create new controls via Internal File Review. Update to NAB FP file review checklist is scheduled for 01/07/2017 and

will form part of file reviews from July onward.

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Signature

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Damian Murphy

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Chief Risk OfficerConsumer Banking & Wealth Management National Australia Bank Group

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NAB.005.021.0493

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Email completed and signed forms to: For more information• fsr.breach.reportEng@asic.gov.au Web www.asic.gov.au

Need help? www.asic.gov.au/questionii

I*'Telephone

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1300 300 630

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