Citi’s banking analysts say the financial crimes regulator’s letter to National Australia Bank was an action more born out of frustration than a precursor to a civil prosecution similar to Westpac and Commonwealth Bank cases.
Last week, NAB said it been referred to Austrac’s enforcement team following the identification of potential "serious non-compliance" with anti-money laundering and counter-terrorism financing laws.
The bank was advised that these concerns have been referred to the regulator’s enforcement team, which has initiated a formal investigation.
NAB has identified problems with its customer identification procedures as well as its ongoing customer due diligence, dating back as early as 2016, Citi’s analysts said in a report.
“However, despite almost four years of rectification work, for $800 million, NAB has continued to report non-compliance issues to regulators concerning their processes, procedures, and documentation,” the report said.
“We expect NAB will likely be forced to re-prioritise these rectifications under a new Austrac-led timetable.
“Whilst we are not expecting civil penalties at this stage, higher operating cost growth must be inevitable to meet the regulator’s expectations.”
Last week, the financial crimes agency launched an enforcement investigation into NAB’s ‘Know Your Client’ procedures.
Citi said Austrac’s concerns emanate from historical and contemporary compliance assessments. “In particular, the seriousness of self-disclosed matters over a prolonged period combined with the accompanying closure rates has become concerning enough to Austrac to take this action.
Short term cost growth inevitable
However, the letter highlighted that civil penalty proceedings were not being considered currently. “This suggests other potential forms of enforcement, such as enforceable undertakings, infringement notices, and remedial directions are more appropriate in this situation."
Nevertheless, the analysts pointed out that near term cost growth may be inevitable. “Whilst we will wait for NAB to outline how it plans to rectify this situation, it appears inevitable at this stage that operating cost growth for the 2021 second half and 2022 will need to be higher.
“NAB has taken way too long to rectify these issues and now it appears Austrac will seek to accelerate the rectification process.”