Here’s Andrew Thorburn’s letter about the ‘deeply confronting’ royal commission


  • NAB chief executive Andrew Thorburn tells how he has found the financial services royal commission ‘deeply confronting’.
  • And he admits he was wrong to oppose the establishment of a royal commission.
  • Thorburn now believes the royal commission was necessary to provoke critical self-examination and to drive change.

Andrew Thorburn, the CEO of the NAB, wrote a letter to the financial services royal commission as part of the bank’s response to commissioner Kenneth Hayne’s interim report.

The commission’s report declared that greed, and the pursuit of short term profit at the expense of basic standards of honesty, was the primary motivator for bad behaviour in the banking industry.

“It has caused me to reflect on where we have gone wrong and why we have drifted away from our customers,” Thorburn wrote.

Here’s the full text of Thorburn’s letter:

Dear Commissioner
The Royal Commission has been a deeply confronting experience for the banking sector and has challenged us at an industry, enterprise and individual level. It has exposed issues, both at NAB and more broadly, that have been upsetting and disappointing. I have personally felt this deeply, having worked in our profession for more than three decades. Our 33,000 people are also feeling it. These include tellers, small business bankers, agri bankers, corporate bankers, and support teams, such as our people, technology and operations divisions. The vast majority of them do the right thing, serve our customers well and act with integrity.

I was not, initially, in favour of the establishment of a Royal Commission. I was wrong. I am now firmly of the view that it is not only an appropriate, but necessary, inquiry to provoke critical self-examination by financial services companies and to drive change for customers. Your thorough examination has been a significant learning experience for NAB and for me personally. It has caused me to reflect on where we have gone wrong and why we have drifted away from our customers. I have also considered how at NAB we can address those issues in a meaningful and sustainable way.

The submission which follows has been prepared in this spirit. It is forward-looking and focuses on the long-term. Your interim report is fair and balanced, and poses many important questions of policy and practice. In responding we have challenged ourselves to think deeply and differently about current industry norms, as well as our own sometimes long-held positions and practices.

Regulation alone cannot achieve all the change that is required. As a bank, and as an industry, we need to listen, learn and respond with actions. It is critical that our internal reforms are searching, mature and calibrated to contribute to the building of a better system.

Again, we have tried to keep these considerations “top of mind” in preparing the response which follows.

The first step in any reform is to understand the underlying causes of the issues which make that reform necessary. In my view there are at least four significant and inter-related changes that have happened which help to explain why things have gone wrong:

  • First, there has been a shift in the way we view our customers and our role, leaving our industry open to your challenge that we have put “profits before people”. We have failed to recognise that, ultimately, the interests of our shareholders are aligned with those of our customers in the sense that, if we get the customer experience right — if we serve our customers’ interests well — we will build a sustainable business for all stakeholders.
  • Secondly, banks, including NAB, have moved over time from taking a long-term view to a shortter one. This perspective has skewed the focus to nearer term outcomes at an institutional level (for example, profitability). Given the nature of our business and the risks associated with it, we need to refocus our planning over the five to ten year horizon, not just one to two years.
  • Thirdly, there has been a shift from a time when the majority of people in the sector were remunerated with fixed pay. This led to most people receiving variable rewards, calculated by reference to short-term considerations including sales, growth and profits. NAB has made changes in this area over the last 12 months, and we are continuing to re-examine it and challenge ourselves to improve even further.
  • Finally, banks have become more complex, in part due to increasing regulation, compliance obligations and legacy systems. It has also meant our bankers have in many cases lost the deep local connections they had with customers and the communities they serve.

These are issues that NAB has been considering for some time and which reflect our submissions on key questions raised by you in your interim report.

For example:

  • We have changed our assessment of performance by reforming performance plans for almost all employees. These emphasise the importance of longer term qualitative customer-centric metrics. Financial outcomes are now a minority component in that assessment.
  • We have recently revised our deferred remuneration scheme for executives in a way which exceeds the requirements of the BEAR regime, so as to reward sustained performance and reorient the remuneration framework to longer term outcomes.
  • We have committed to reform for mortgage brokers as soon as feasibly possible (and by 2020) to ensure that they are bound by a positively framed ‘customer first duty’. This will require them to actively engage with customers to make a meaningful assessment of their circumstances and requirements, and to ensure that customers only obtain loans from NAB that they can afford and need.
  • We are actively working to simplify our internal policies and processes to ensure that they are better understood, easier to apply and calculated to produce better compliance and customer outcomes. This is an area of substantial effort and focus.
  • We support the cessation of grandfathered commissions as well as the introduction of additional measures which encourage the transition of financial advice businesses to nonconflicted revenue models, including the repeal of the conflicted remuneration grandfathering provisions set out in the Corporations Act (see paragraphs 28 to 32 below).
  • We have determined that default interest should not be charged to customers impacted by drought or other natural disasters; or beyond 12 months from when a loan becomes impaired.
  • We will amend our credit contracts to formally embody this policy and are in the process of determining how best to ensure existing customers receive the benefit of this change. NAB has also committed to meet with customers, face-to-face, within 30 days of their agricultural loan becoming 90 days’ past due.
  • We have implemented a moratorium on branch closures in regions of Australia where there is a drought declaration in place. This affects 130 of NAB’s branches and recognises the need to support customers and communities in these difficult times.
  • We have also established a Centre for Customer Remediation, to ensure we compensate customers faster when we get things wrong. This is a specialist team that will focus on a consistent, fair and holistic approach to remediation.

In order for Australia to be ready for both the risks and opportunities we face in the future, we need banks that are strong. The financial system plays a key role in the Australian economy. It drives growth and raises living standards by channelling capital from diverse sources to businesses, consumers and the community. Well-capitalised and profitable financial institutions, together with a comprehensive regulatory framework, have supported Australia’s continued economic growth for over 25 years, despite several significant external shocks. It is critical that this continues.

But strength is more than just about balance sheet or profitability — it is also about being valued by customers for the products and services we provide. This leads to trust. The process of earning that trust and confidence in our industry has started and we are taking action. There is much more work to do and it will take time to address the many issues identified by you.

We will take further actions to earn the trust and confidence of customers, shareholders and the community.

Yours sincerely
Andrew Thorburn