UK and European Regulatory Disclosures and Updates

The National Australia Bank Group (NAB) operates in many jurisdictions across the globe, providing a wide range of financial services to a broad customer base. NAB faces actual, potential or perceived conflicts of interest during its normal business activities.

NAB has internal policies and procedures in place to identify and manage conflicts of interest and prevent those that can’t be managed. Below is a summary of those policies and procedures.

Identification of conflicts of interest

Conflicts may arise in many circumstances in the course of NAB’s business, including where:

• NAB’s interests conflict with those of its customers
• the interests of NAB’s directors, offices, employees and secondees or contract hires of NAB (a “NAB Person”) conflict with those of its customers
• the interests of NAB and a NAB Person conflict
• the interests of differing NAB entities conflict
• conflicts of interest may occur between different customers of NAB.

Management of conflicts of interest

NAB’s policies and procedures describe the methods NAB may use to manage actual, potential or perceived conflicts of interest. These include (but are not limited to) physical, technological and organisational arrangements to protect customer interests and manage actual, potential or perceived conflicts of interest. Most importantly, NAB Persons who undertake different business activities must do so with an appropriate degree of independence.

NAB also maintains certain arrangements that prevent or control the flow of information between NAB Persons performing particular roles involving a risk of a conflict of interest, where the exchange of information may harm the interests of one or more of NAB’s customers.

In certain instances, where NAB determines that a conflict cannot be adequately managed, NAB will decline to proceed with the proposed service or transaction. Alternatively, NAB may determine that it’s possible to proceed, but that additional disclosure regarding conflicts is required.

Disclosure

There may be occasions when NAB’s procedures and controls are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of a customer will be prevented. Should this occur, and in accordance with applicable regulatory requirements, NAB shall clearly disclose the following before undertaking business on a customer’s behalf:

• the general nature and sources of the potential conflict
• steps taken to mitigate the potential conflict, in enough detail to help the customer make an informed decision
• in appropriate circumstances, NAB may obtain the customer’s written consent before proceeding.

Further information

Detailed internal NAB policy documents and operating procedures may not be fully represented in this summary. If you would like further information regarding NAB’s conflicts of interest policies and procedures, please get in touch with your usual NAB contact.

The Benchmark Regulation EU 2016/1011 of the European Parliament and of the Council dated 8 June 2016 (EU BMR), was introduced due to concerns about the accuracy and integrity of indices used as benchmarks in financial markets. The BMR builds upon the global standards set out in principles published by the International Organisation of Securities Commissions (IOSCO) known as the “Principles for Financial Benchmarks” and imposes certain requirements on firms that provide, contribute to or use benchmarks in the European Union (EU) as defined in the EU BMR.

Following the end of the Brexit transition period on 31 December 2020, the UK ceased to be a member of the EU. A body of retained EU law has been created in the UK which is based on the EU law that applied to the UK prior to this date.

“UK BMR” means EU BMR as it forms part of retained EU law as defined in the European Union (Withdrawal) Act 2018 (as amended).

Similar to EU BMR, UK BMR contains transitional arrangements for third-country (non-UK) benchmark administrators, allowing such administrators to apply for recognition or enforcement from the UK’s financial conduct authority (FCA) prior to a specific date.

Third-country benchmark administrators will need to be authorised under the UK’s recognition or endorsement regime by 31 December 2022, unless an equivalence declaration is given by the UK in respect to them prior to such date. The UK Government has announced that it intends to extend this deadline to 31 December 2025. As a result, third-country administrators who want to continue using their benchmarks in the UK after 31 December 2025, must apply to the FCA for approval via equivalence, recognition or endorsement before this date.

The FCA has developed a UK Benchmarks Register, replacing the ESMA Register for UK supervised users, and UK and third country-based benchmark administrators that want their benchmarks to be used in the UK.

UK supervised entities within the National Australia Bank Limited group of companies (together, “NAB”) are required to comply with the UK BMR and EU BMR, as applicable.

NAB robust written plan

Article 28.2 of the EU BMR provides, among other things, that:

EU supervised entities that use benchmarks must produce and maintain a robust written plan setting out the actions to be taken in the event that one or more benchmarks materially change or cease to be provided. Where feasible and appropriate, the plan shall nominate one or several alternative benchmarks that could be referenced to substitute the benchmarks no longer provided, indicating why such benchmarks would be suitable alternatives.

NAB has written “Financial Benchmark Fallback Plan” to address the requirement in Article 28(2) of EU BMR (the Plan). This webpage contains a high-level summary of that Plan. Following a benchmark cessation or material change to a benchmark (together, a Trigger Event), NAB will invoke its Plan.

As a first step a qualitative assessment will be conducted to determine the materiality of the impact of the Trigger Event. Based on this materiality assessment an escalation decision will be made, after which a further, detailed impact assessment may be executed. This detailed assessment will include a quantitative and qualitative assessment of the Trigger Event, including where appropriate:

• identification of all products, transactions and counterparties including an impact analysis in terms of notional values, risk exposures and type of legal agreements;
• a review of affected agreements, products, counterparties and transactions including checking whether the existing contractual arrangements already contain alternative benchmarks and to what extent a benchmark event frustrates or otherwise breaches the terms of any financial contract or financial instrument;
• a qualitative review of the impact to internal systems, models and processes.

The overall purpose of the steps outlined above is to identify, where feasible and appropriate, a suitable and appropriate alternative benchmark that can be referenced in substitute of the existing benchmark subject to the Trigger Event. NAB will follow market standards to identify such alternative benchmarks as much as possible. For example, it is expected that for “critical benchmarks” (as defined in Article 20(1) EU BMR) the market, for example a Central Bank or working group or calculation agent, will nominate an alternative benchmark which NAB expects to include in new contractual agreements, where appropriate and relevant.

If it has not been feasible and appropriate to nominate an alternative benchmark based on market standards, a proposal of actions to be taken in relation to the affected benchmark may be prepared. The proposal will take into account the impact assessment and shall consider the replacement of that benchmark with an alternative benchmark, seeking approval or notifying a regulatory body (where relevant), amendment to contractual documentation, and notification of stakeholders.

Once the proposal has been approved, internal stakeholders will work together to implement the proposal. For example, clients may be notified or their consent may be sought to change the benchmark, and contractual documentation may be amended.

The description above is a high-level summary of the Plan only, and the process to be taken in relation to different countries, business lines or circumstances may differ. This summary only serves to provide general background information, is indicative and not necessarily complete or correct and is not intended to provide any individual, legal or other advice. The Plan and this summary are subject to change without notice.

Details of UK BMR are available at:

https://www.legislation.gov.uk/ukdsi/2019/9780111179208/contents

https://www.legislation.gov.uk/uksi/2020/628/regulation/12/made

Financial Benchmark Reform – Disclosures for Derivatives, Floating Rates Notes and Loans

Details of EU BMR are available at:

https://ec.europa.eu/info/law/benchmarks-regulation-eu-2016-1011_en