Royal commissioner Kenneth Hayne has floated the possibility that NAB could face criminal charges for charging customers fees for no service, during a third day of tense questioning about the conduct of the bank’s superannuation arm.

Counsel assisting Michael Hodge heaped the pressure on former NAB superannuation trustee Nicole Smith, alleging the bank had deliberately found ways to charge members fees without providing any service.

Questioning Ms Smith about the bank’s dealings with ASIC over the misconduct, counsel assisting Michael Hodge QC asked, “Did you regard yourselves as having got off lightly?”

“Absolutely not,” Ms Smith replied.

“[NAB] didn’t contemplate the prospect of civil proceedings?” Mr Hodge asked.

When Ms Smith replied in the negative, Commissioner Kenneth Hayne chipped in, asking if there was “any contemplation of criminal proceedings” by the bank.

“Did you think, yourself, that taking money to which there was no entitlement raised a question of the criminal law?” Commissioner Hayne said.

“I didn’t,” Ms Smith replied. She said that despite ASIC still investigating the issue, the bank had not considered the likelihood of criminal charges against it or its staff.

Commissioner Kenneth Haynes and NAB executive Nicole Smith. Photos: Royal Commission/AAP

The commission also heard NAB continued to pay adviser commissions on superannuation accounts because it feared they would pull their clients from NAB products – regardless of the clients’ interests – if the bank turned off commissions.

Ms Smith’s admission came as she was asked “if you turned off commissions, advisers would advise clients to leave the super fund?” by counsel assisting Michael Hodge QC.

“Yes,” she said.

Following the introduction of the Future of Financial Advice laws in 2014, commissions on super products were banned. However, existing arrangements were permitted to be grandfathered.

But if clients were to leave NAB on advisers’ say-so, the laws would prevent advisers receiving commissions in the new funds that customers entered – implying advisers would be acting out of spite or to punish NAB.

“They [clients] couldn’t move to a new fund and be charged commissions after FOFA,” Mr Hodge observed.

Ms Smith agreed and said NAB feared they would be moved anyway and the bank’s super funds would suffer “attrition”.

“Is that because you didn’t expect advisers to act in the best interests of members?” Mr Hodge asked.

“I’m not going to comment on that,” Ms Smith replied. However, she eventually said that “it was a risk we considered had the potential to be real”.

Despite considering client flight as a risk if grandfathered commissions in super funds were scrapped, Ms Smith said the bank had not calculated the number of accounts it was holding that were paying adviser commissions.

However, she said that some of the affected accounts were high-fee-paying. These products were switched into another NAB vehicle, with the grandfathered commissions intact, because it needed to be done quickly.

The need for speed followed the sale of NAB’s life insurance business, which contained the super products that had to be transferred out before the sale.

The transfer of the members was difficult and had to be done in a way that maintained their rights into the new fund, Ms Smith said.

“So paying commissions is a right of the member?” Mr Hodge asked.

Best interests were not necessarily about clients being in the “best position”, Ms Smith said, as issues such as servicing accounts were also important.

Later Ms Smith said paying commissions could not be considered to be in the best interests of clients as it reduced their available balances on retirement.

The decision on the terms under which funds were transferred was made by a management team that Mr Hodge characterised as being “hopelessly conflicted”.

Ms Smith said they were “conflicted but not hopelessly conflicted”.

She acknowledged that, following FOFA, retail super funds had transferred assets into MySuper default accounts more slowly than industry funds did.

NAB chose to move funds at 5 per cent a quarter during 2015, with the rest being moved during 2016. Industry funds had far less complex arrangements than retail funds, which made it easier to switch, she said.