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Banks and auditors must do better

For one, NAB chairman Ken Henry reportedly told EY consultants he was quite sure the bank, in June 2018, was still selling dud products. As well, NAB had been on “red” alert for at least 20 months over problems with regulatory, operational and compliance issues.

Finance Minister Mathias Cormann has suggested Dr Henry’s comments might need some context. Though what more evidence does the government need to appreciate the depths of poor behaviour, poor compliance and downright cant among some of the nation’s most important organisations?

NAB had been on “red alert'' for at least 20 months over problems with regulatory, operational and compliance issues.

NAB had been on “red alert” for at least 20 months over problems with regulatory, operational and compliance issues.Credit:Paul Rovere

Today there are further revelations about NAB’s New Zealand subsidiary processing a payment ‘‘identified to be for oil originating from Iran’’, breaching its own Economic and Trade Sanctions Policy.

When Commissioner Ken Hayne, QC, delivered his final report, after hearing evidence for almost a year about woeful failures in the banking and insurance industries, he said he was “not persuaded that NAB is willing to accept the necessary responsibility for deciding, for itself, what is the right thing to do, and then having its staff act accordingly”.

His comments underscored the dithering EY had detected eight months earlier. Risk management is not a trite issue about ticking boxes to ensure authorities are satisfied. It is about learning, being alert, being aware of potential pitfalls and being on top of all legislation and regulations affecting the business.

Proper risk management requires a top-down implementation of an abiding culture of integrity, watchfulness and accountability. It’s about people at every level having a role with specific responsibilities, and not being fearful of speaking up about deficiencies. Apologies, Commissioner Hayne said, were not sufficient to amend the huge reputational and structural damage done to the financial services industry, which stands or falls on consumer trust.

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After Ferguson’s revelations about NAB last week, a parliamentary inquiry focusing on the auditing industry was called. The controversy over auditing firms simultaneously providing consultancy services to clients has reared repeatedly in the past 30 years.

It has re-emerged in Britain following a 2018 parliamentary inquiry into the collapse of construction firm Carrillion. A separate report by the UK Competition and Markets Authority has recommended breaking up the Big Four and carving out auditing from consultancy services. Such a move would appear necessary to maintain integrity and reduce the risk of conflicts of interest.

Nevertheless, we hope the parliamentary inquiry here carefully examines the multi-layered relationships pursued by the so-called Big Four accounting firms in auditing and consultancy so that trust, transparency and reliability are given primary consideration.

  • A note from the editor – Subscribers can get Age editor Alex Lavelle’s exclusive weekly newsletter delivered to their inbox by signing up here: www.theage.com.au/editornote

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