The head of the trustee responsible for NAB's superannuation funds told the royal commission she never thought about whether wrongly taking fees from customers' accounts was a crime.

Key points: Some superannuation customers were charged fees despite no adviser being assigned to them

Some superannuation customers were charged fees despite no adviser being assigned to them NAB was aware of fee error at end of 2015 but compensation plan not approved until late 2016

NAB was aware of fee error at end of 2015 but compensation plan not approved until late 2016 ASIC says total cost of compensation for the "fee for no service" scandal across industry could reach $850 million

Commissioner Kenneth Hayne raised the question of criminal behaviour during NAB's third day of questioning over its part in the "fees for no service" scandal.

Nicole Smith, who was the chair of the trustee NULIS until the end of June, is giving evidence about financial advice fees that were charged to some super customers — despite no adviser being assigned to them.

Ms Smith told the hearing that NAB's wealth management division — acting as the administrator for the super fund — and the board of the trustee debated the relative effects of entering an enforceable undertaking with corporate regulator ASIC or having its licence conditions changed.

Under questioning by counsel assisting Michael Hodge QC, Ms Smith denied NAB was getting off lightly and described the extra licence conditions as "enforcement action" by the regulator.

Nicole Smith has defended the trustee's decision to keep charging customers after a merger of NAB super funds. ( AAP: James Ross )

"When I talk about an enforcement action I mean a proceeding in a court alleging a contravention of the [Corporations Act] but for some reason that's not what enforcement action means in this area," Mr Hodge said.

Commissioner Kenneth Hayne then asked whether there was ever any contemplation of criminal proceedings.

"Did you think yourself that taking money to which there was no entitlement raised a question of the criminal law?" Mr Hayne asked.

"I didn't," Ms Smith responded.

NAB 'hopelessly conflicted' in compensation delay

NAB has dominated the royal commission's superannuation hearings so far.

In 2012, the NULIS board gave its approval for "plan service fees" to be taken from certain superannuation accounts in exchange for financial advice.

By the end of 2015, Ms Smith was aware that some customers who were paying the fees had not been assigned a financial adviser.

However, the NULIS board did not approve a compensation plan until late 2016.

NAB's wealth management division spent months investigating whether it needed to refund the fees or could be justified in keeping them, something Ms Smith and NAB executive Paul Carter defended as part of "due process".

"It's the wealth division that has been taking this money?" Mr Hodge asked.

"If it has to pay this money back, it will be the wealth division that has to pay this money back … It's hopelessly conflicted, isn't it?"

Ms Smith admitted there was a conflict "for the administrator in terms of the revenue".

"However, the administrator wasn't sitting there on its own without appropriate representation from the trustee working its way through the process," Ms Smith said.

Less than two weeks ago, NAB announced it would stop all plan service fees on one of its MLC super accounts and refund $67 million to more than 300,000 customers due to failure to tell them that they could simply call up and ask for the fees to be stopped.

On Tuesday, ASIC revealed that the total cost of compensation for the "fee for no service" scandal across the industry could blow out to $850 million.

NAB trustee says continuing commissions in members' 'best interests'

Ms Smith also defended the trustee's decision to keep charging customers commissions after a merger of NAB super funds in 2016.

Conflicted remuneration, including commissions, was banned under the Future of Financial Advice reforms that came into effect in 2013 but can remain in place for existing customers under "grandfathering" provisions.

Michael Hodge QC questions Nicole Smith on NAB's third day of questioning over the "fees for no service" scandal. ( Supplied: Royal Commission )

Ms Smith said the trustee determined that the merger was in the best interest of members and it considered commissions as part of the transfer.

"There were two alternatives available to you — one was to stop paying commissions and one was to keep paying commissions," Mr Hodge told Ms Smith.

"Do you agree that if a member is not paying a commission, the member is in a better position than if the member is paying a commission?"

Ms Smith responded: "Ultimately, I would say the less fees a member pays, the better their retirement outcome will be."

Mr Hodge asked: "[That] can't have led you to the conclusion that it was in the best interests of members to maintain [grandfathered commissions]?"

Ms Smith responded that "best interest is not about the best position," arguing there was a risk the super fund merger could have fallen through if commissions were scrapped.

The inquiry also heard NAB charged a dead super fund member fees — something the bank uncovered in May, after the commission revealed Commonwealth Bank had charged dead customers.