Governance and Risk Management Audit

This document provides an overview of the governance and risk management audit of National Australian Bank (NAB). It discusses NAB's values, governance structure, risk management framework, and corporate social responsibility. The report highlights the gaps in NAB's governance and risk management practices and explores its approach to responsible finance, climate change risk, and human rights.

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GOVERNANCE AND RISK MANAGEMENT AUDIT
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Overview of National Australian Bank
NAB limited is an enterprise bank involved in offering personal banking and business
banking services. NAB's segments entail enterprise and private banking (REUTERS, 2019). The
bank has also delved into other areas such as corporate and institutional banking, wealth
management, and banking for the consumers. NAB's enterprise and private banking concentrate
on small and medium enterprises clients which entail the bank's enterprise franchise that
specializes in health, education, agriculture and services for the community accompanied by both
private banking and small business sector. The CIB entails corporate and institutional banking
enterprises, capital financing enterprises, servicing of assets, and global branches. On the other
hand, customer products involve banking and wealth products, NAB ventures, and corporate
affairs. Consumer banking and wealth management entails the distribution of parts of wealth
management.
NAB's values
NAB's culture is grounded by five primary values that are a passion for satisfying
customers, winning as a team, boldness, respecting people, and doing the right thing. It is such
values that shape its people and the businesses they engage in daily (NAB, 2019). NAB is also
proud to state that it works with several local communities and provide volunteer leave aiming to
improve the social and economic status of the people around it. NAB also assists people in its
workplace via learning and providing development opportunities, diversity, and inclusion.
NAB's core values are items that it is passionate about as they capture the importance of NAB's
aspirational tradition and demonstrate that it cares deeply with regards to how things get done
instead of what the bank does. In the passion for customers, NAB puts itself in its customers'
shoes, seeking and offering the right remedy for them and solving things first if they are done

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wrong. The win together value ensures that NAB goes the extra mile for its customers and
people and never losing the sight of its objectives. Boldness ensures that NAB is not intimidated
to raise tough questions and to attempt something different. NAB backs itself and is accountable
for its actions. The respect for people ensures that NAB has a real conversation with its people
and consistently showing respect and brevity, this ensures that NAB embraces things that makes
it different and motivate the development of an inclusive culture. Lastly, doing the right thing
facilitates that NAB makes good decisions for its customer, people, and the societies even at
times when it is almost impossible.
Governance and risk management audit
Governance in the context of NAB can be defined as how decisions are made in this bank
with the inclusion of financial objectives, virtues and strategic priorities effect on the process of
decision making and risk management and the protocol of ensuring that decisions made get
implemented. The purpose of this report is to assess the gaps between what NAB has committed
to its various stakeholders and the actual actions regarding those commitments (NAB, 2018).
The report entails reviewing NAB's governance of the material risk groups to which NAB is
exposed, and it will also focus on primarily on the categories that have reported latest incidents
and the drawbacks associated worth such incidences. With regards to NAB, the primary areas of
concern are related to non-financial risks such as operational, compliance, and conduct risks.
According to NAB, the three risks that is operational, compliance, and conduct have various
meanings and significance to the bank.
Operation risk is defined as the risk that arises from failed internal frameworks,
individuals, and systems. This entails legal risks with the exclusion of strategic or reputation risk.
Conduct risk, on the other hand, refers to the risk from actions of the bank or those acting on

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behalf of NAB will lead to unfair results for its customers (NAB, 2018). Lastly, the compliance
risk refers to the risk associated with failing to fathom or complying with relevant laws.
The NAB board is tasked with managing the overall governance and strategic direction regarding
NAB and also heads the delivery of performance with the inclusion of managing the prevailing
risks (NAB, 2018). The Board is composed of nine non-executive directors all appointed by the
bank's shareholders and the CEO, who is a non-executive director. It is the responsibility of the
Board to provide the strategic direction to be followed by NAB's enterprises and also supervise
the bank's operations and performance using the development of sustainable value. Thus, the
directors have to operate in the best interests of the bank while also fulfilling the responsibilities
stipulated in the Board Charter, which is one of the documents that are available on NAB's
website. However, NAB has board committees to assist the Board with regards to oversight of
particular sectors of governance.
The Board has been reported to work in unison as a team with increased levels of
confidence with each other and clear identification and leverage of their level of experience,
skills, and aptitude from each member (NAB, 2018). The past interviews, particularly those with
the executives, demonstrated that the Board members were active participants and were fully
immersed in the business conducted by the Board. The chairman of the Board and the CEO of
NAB have been reported to be involved in a constructive and open relationship characterized by
meetings and conferences every week to converse on the activities of NAB and the performance
of executive leadership.
The Board also conducts a dynamic agenda crafted around the idea of Run the Bank and
Change the Bank. The Run the Bank is tasked with ensuring the daily operations and
performance of the bank while change the bank situates the strategy and actions to improve the

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bank are well catered for (NAB, 2018). However, there have been instances where there was
insufficient time with regards to the agenda being allocated to vital matters. A good illustration
was NAB's response to the issue of 'fees for no service' where the Australian Securities and
Investment Commission had begun a project to evaluate in 2015 (NAB, 2018). This led to NAB
to consenting to a customer remediation program with ASIC with regards to this. It was not until
recently that the Board requested insufficient time with regards to agenda.
Customer focus
Though the customer results and conduct are some of the primary priorities for the Board, there
is a need to have its oversight improved on such matters partially via receiving reports that are
well organized.
Risk management
NAB runs its RMF intending to provide support for effective control with regards to the
material risks and also to offer the Board a complete view of such risks. NAB's RMF is also
crafted to ensure that it meets the requirements associated with CPS 220 (NAB, 2018).A full
independent review of the framework that was to be conducted after every three years.2018, saw
the most recent review as it revealed that NAB's RMF framework was substantial and relevant
when evaluated against the requirements of the essential standards (CliftonLarsonAllen, 2013).
However, the use of RMF was deemed to be partially effective as there were some weaknesses
found in particular components entailing risk governance and reporting and policy sophistication
(Association of Chartered Certified Accountants, 2008).
Regarding the non-financial risk management, great importance is given to compliance
and conduct based on the fact that it is the bank's responsibility to adhere to the law and
obedience to such codes of conduct while delivering the financial services to clients efficiently,

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honestly and fairly (Ferguson, 2016). However, both the maintenance and practice of compliance
arrangements commands great discipline, based on the fact that as of September 2018, the
operations of NAB in Australia were under 2732 special compliance obligations.
Gaps
The RMF by NAB has not laid the needed focus in areas such as customer results in its
risk system, policies, and regulations. Though the starting line at NAB openly takes
responsibility of its risks and controls and resources to ensure that they are in line, both the
quality and the effectiveness of such controls and the need to have documentation for control
demands require significant improvements. In the second line, NAB is responsible for risk
reporting that is bank oriented and a risk and compliance systems as well as offering oversight
and challenge to the first line.
Corporate social responsibility
NAB asserts that it has good governance that has effective systems that manage risks,
make the right decisions, and anticipate its regulatory needs. According to the social
responsibility report, such governance is crucial in ensuring robust and effective systems of
governance that are vital to controlling risk and offering finance to clients in a responsible
manner (NAB, 2018). This entails managing climate change, issues entailing human rights and
other ESG risks in its loan book and its business generally. NAB understands the importance of a
robust governance and risk management framework in its business to enable it to address the
changing market environment and regulatory demands (NAB, 2018). The bank understands the
importance of effective risk management and the process of decision making to fathom its
exposures, inform on policy decisions and establish plans for asset management, and engage

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with its clients about its activities. NAB also understands that it is the robust governance that
forms the basis for how it interacts with its suppliers and manage the effects of its supply chain.
What NAB is doing
NAB is facilitating responsible finance which entails lending in a manner that mitigates
risks associated with credit and ascertains that its customers can service their loans. Responsible
financing, according to NAB, also involves offering finance for activities such as merchant
services, bonds, and other financing activities in a manner considered ethical and prudent. NAB
manages risk at the customer, asset, and sponsor level to facilitate that it is offering responsible
finance (NAB, 2018). NAB's lending book portrays the primary industries available in
Australia's economy, and the bank closely monitors its exposure to such industry segments and
operations that may have higher ESG risks. NAB engages with its investors, NGOs, and other
imperative stakeholders about its exposure to a range of industry segments that portray higher
ESG risks that include resources, oil and gas, and even tobacco. In 2018, NAB also reviewed its
credit risk policy frameworks for the oil and gas segment.
Climate change risk
NAB identifies climate change as a significant risk to its environment and a primary
challenge for the international economy and community, and this is the reason why NAB
supports the transition to a low carbon economy in conforming to the Paris Agreement to reduce
global warming to levels less than two degrees beyond the pre-industrial limits (NAB, 2018).
NAB recognizes the need to manage climate change as it provides opportunities to assist its
customers. NAB, as an international provider of financial products, it can hold a central position
in financing the transition with regards to low carbon and green growth. NAB is also establishing

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considerations regarding climate-related risks and opportunities into its business model and risk
management system to enable it to become a sustainable yet resilient enterprise.
Climate change governance
The Board has the highest oversight with regards to ESG risks, and this includes climate
change (NAB, 2018). It is tasked with receiving regular reports on various climate-associated
matters and performance objectives entailing progress against its climate change approach,
dedication, activities, and feedback from the stakeholders. The Board also gets updates regarding
any changes in regulations and gives consent to the bank's reporting regarding greenhouse and
energy returns before being given to the regulators. NAB's executive leadership team, in
conjunction with the risk committees, are engaged in managing governance and risk
management associated with climate change. NAB also has a Working Group tasked with
climate change and reviews the significant risks and opportunities in the bank's enterprises and
customers arising from the Paris Agreement. In 2018, NAB attained a total of about $10.4
against its dedications to offer $ 20 billion to promote green infrastructure, capital markets and
asset finance come 2025 (NAB, 2018). Also, NAB set apart $12.5 billion against its commitment
to provide $ 35 billion to cater for the new mortgage loan flow with regards to the six-star
residential housing by 2025.
Human rights
The risk management frameworks recognize, evaluate, mitigate, and investigate potential
risk segments such as human rights. This entails NAB using its high-risk ESG segments and
sensitive areas list to ascertain customers and suppliers that may be having a higher risk of ESG
matters and where due diligence may be needed (NAB, 2018). Training regarding human rights
is included in training involving risk awareness and particularly related training, for instance,

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code of conduct and NAB's yearly health and safety training. NAB's grievance platforms are in
check to enable employees, customers, and other individuals to have concerns raised regarding
human rights (NAB, 2018). NAB asserts that whenever grievances get raised, it investigates and
respond to them as relevant. This may entail interacting with customers and other relevant
stakeholders. NAB states that it lacks an independent human rights grievance protocol.
Managing such grievances is a function of its people, clients, corporate affairs, and
whistleblower grievance framework and escalated whenever necessary. NAB remains focused on
establishing its people's ability to identify and manage possible human rights issues.
NAB's human rights grievances linked to its people are generally channeled via its
employee complaints framework. Some of the claims entail allegations of bullying in the
workstations, harassment with the inclusion of sexual harassment or discrimination on the
grounds of a protected environment (NAB, 2018). All the concerns are reviewed with great care,
and a consistent approach determined. This may entail conducting investigations by the
employee relations team.
Employees
NAB backs its staff as this helps it back its customers. As the bank transforms, it is vital
for it to innovate while being agile and responsive to the needs of its customers. NAB aims at
anticipating this hurdle with the help of its engaged and diverse pool of staff backed by great
leaders, talent, and culture (NAB, 2018). NAB understands that its leaders need to be
outstanding, high performing, innovative, and connected to attain the bank's vision. NAB has a
global workforce of roughly 33000 employees and more than 90 percent of its employees work
in Australia and New Zealand while the other portion is in London, New York, and some parts of
Asia. NAB's people strategy focuses on bringing on Board outstanding leaders, brilliant bankers,

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and a workforce that is enthused by the future. NAB uses data and evidence to inform how to
interacts with its people.
NAB's engagement with its people begins with listening to the feedback they give to the
bank. This year, NAB launched Workplace, which is a social media avenue that motivates its
employees to provide feedback in good time and crack business riddles as a team. It is reported
that 21000 of the staff has joined Workplace within the first three months and had roughly 15500
active participants each week (NAB, 2018). This assists in hierarchies and provides its people
with a direct association with leaders and other groups in the firm.
NAB is committed to ensuring that employees get back to work, and this is deemed as
safe and sustainable. It is through this that NAB aims at providing that its injured employees are
accorded the best treatment and the type of rehabilitation that yields optimal recovery. From a
business angle, and this has led to a few cases associated with lost-time injury grievances and
kept the frequency rate regarding lost-time injury low (NAB, 2018). NAB claims that its lost
days were due to stress that was related to work stuff. NAB is focused on giving care to its
people by according the needed support via its employee assistance program and well-being
initiatives aimed at driving a positive organizational transformation.
NAB announced at the end of 2017 that it would be reshaping its workforce to be
simpler, quicker, and closer to its customers. This could entail reshaping its workforce in
anticipation of the future and focus on talent and leadership. NAB reported that it was aiming to
develop 2000 new employment positions come 2020 mainly in the sectors of technology, data
science, and artificial intelligence while asserting that more than 6000 existing jobs would be
scrapped off from its job portfolio (NAB, 2018). This far more than 195 new employment
opportunities have been created, and more than 1800 posts have been removed.

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Conclusion
Despite asserting that it has good governance in its management framework, such
governance is not without issues such as putting the needed focus on its compliance and conduct
with the laws and codes that have put in place to ensure that the bank acts responsibly, honestly
and ethical to its customers. However, the corporate social responsibility by the bank has
addressed issues amicably among its stakeholders. For instance, NAB has ethical frameworks to
ensure that workers are treated well-following workplace injury and also has a grievance system
that follows up cases launched by both the customers and workers. This ensures that workers are
not harassed by their supervisors and seniors while working, reducing the chances of workplace
bullying. The values adopted by the bank are appealing to the public as it is passionate in
ensuring the customers are always treated in the best way possible providing the value for their
money is reflected in the products that and services, they purchase from NAB.

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References
Association of Chartered Certified Accountants, 2008. Corporate Governance and Risk
Management Agenda. [Online]
Available at: https://www.accaglobal.com/content/dam/acca/global/PDF-technical/corporate-
governance/tp-cga.pdf
[Accessed 22 May 2019].
CliftonLarsonAllen, 2013. The Role of Internal Audit in Risk Governance. [Online]
Available at:
https://www.claconnect.com/-/media/files/white-papers/theroleofinternalauditinriskgovernancecl
iftonlarsonallen.pdf
[Accessed 22 May 2019].
Ferguson, A., 2016. Report slams National Australia Bank's risk management. [Online]
Available at: https://www.afr.com/business/banking-and-finance/report-slams-national-australia-
banks-risk-management-20160515-govh0z
[Accessed 22 May 2019].
NAB, 2018. NAB Self-assesment on governance,accountabilty and culture. [Online]
Available at: https://www.nab.com.au/content/dam/nabrwd/documents/reports/corporate/nab-
self-assessment-2018.pdf
[Accessed 22 May 2019].
NAB, 2018. Sustainabilty Report of 2018. [Online]
Available at: https://www.nab.com.au/content/dam/nabrwd/documents/reports/corporate/2018-

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sustainability-report.pdf
[Accessed 22 May 2019].
NAB, 2019. Culture and Community. [Online]
Available at: https://www.nab.com.au/about-us/careers/working-at-nab/culture-and-community
[Accessed 22 May 2019].
REUTERS, 2019. Profile: National Australia Bank Ltd (NAB.AX). [Online]
Available at: https://www.reuters.com/finance/stocks/company-profile/NAB.AX
[Accessed 22 May 2019].