In morning trade the National Australia Bank Ltd (ASX: NAB) share price has tumbled lower.
At the time of writing the banking giant’s shares are down 1.5% to $25.10.
Why is the NAB share price tumbling lower?
After the market close on Tuesday, ASIC revealed that it is taking civil legal action against NAB in the Federal Court.
This is in relation to alleged breaches concerning ongoing fee arrangements with clients of NAB Financial Planning.
The ASIC release explains that it alleges that from December 2013 to February 2019, NAB engaged in Fees for No Service Conduct by failing to provide ongoing financial planning services to a large number of customers while charging fees to those customers.
The regulator is now seeking declarations, pecuniary penalties, and compliance orders from the Federal Court to prevent similar contraventions occurring in the future.
NAB’s Chief Legal & Commercial Counsel, Sharon Cook, said: “We take this action seriously and will now carefully assess the allegations. We will continue to work co-operatively and constructively with ASIC to deal with this issue.”
“We have already acknowledged failures where customers have paid fees for services they didn’t receive and have paid $37.8 million to 27,500 NAB FP clients. Remediation began in December 2018 and is expected to be completed by June 2020.”
The release notes that in February NAB began switching off fees for all clients with ongoing fee arrangements. It also, from April of this year, began transitioning clients to 12-month advice contracts and ceased entering into any new ongoing fee arrangements.
“NAB Financial Planning has made changes to systems and controls and will continue to improve so we can service our clients better,” Ms Cook added.
This includes improved guidance and training to employees and the centralisation of the production of fee disclosure statements to enable enhanced monitoring and supervision of compliance with fee disclosure statements requirements.
What are the potential penalties?
According to the AFR, ASIC alleges that NAB broke the law more than 10,000 times. This leaves it exposed to a theoretical maximum penalty of close to $10 billion.
Whilst it is unlikely that a penalty as severe as that will be dealt, it still has the potential to be material. This could be bad news for NAB and will no doubt fuel further speculation that a capital raising could be on the horizon.
This news appears to be weighing on the rest of the big four on Wednesday. In early trade Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) are both down almost 1%.
The post NAB share price sinks lower after ASIC bombshell appeared first on Motley Fool Australia.
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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019