ASIC takes ANZ Bank to Court Over Alleged Rate Rigging
Tuesday 8 March 2016 @ 10.44 a.m. | Trade & Commerce
As revealed in a recent ASIC Media Release, ASIC has started legal proceedings in the Federal Court against the Australia and New Zealand Banking Group Limited (ANZ) for unconscionable conduct and market manipulation in relation to the ANZ's involvement in setting the bank bill swap reference rate (BBSW) in the period March 2010 to May 2012.
Background
The BBSW is the primary interest rate benchmark used in Australian financial markets, administered by the Australian Financial Markets Association (AFMA). On 27 September 2013, AFMA changed the method by which the BBSW is calculated. The conduct that the proceedings relate to occurred before the change in methodology.
Allegations made by ASIC
ASIC alleges that ANZ traded in a manner intended to create an artificial price for bank bills on 44 separate days during the period of 9 March 2010 to 25 May 2012.
ASIC is seeking declarations that ANZ Bank contravened ss 12CA, 12CB and the former s 12CC of the Australian Securities and Investments Commission Act 2001 (Cth) as well as contravening ss 912A and 1041A of the Corporations Act 2001 (Cth). It is also seeking pecuniary penalties against the bank and an order from the court requiring the lender to implement a compliance program, according to the Media Release.
Matthew Windle, a Sydney-based senior markets analyst said:
“While ASIC’s investigations are three years in the making, it is still too early to judge what the ramifications will be as a result. The key outcome will be to ensure that bank customers and financial markets as a whole can be confident that it is a transparent market place that they are operating in.”
Prior to the action, ASIC's investigations into misconduct in the BBSW has seen ASIC accept enforceable undertakings from:
- UBS-AG;
- BNP Paribas; and the
- Royal Bank of Scotland.
The institutions also made voluntary contributions totalling $3.6 million to fund independent financial literacy projects in Australia. In July 2015, ASIC published Report 440, which addresses the potential manipulation of financial benchmarks and related conduct issues.
Further, ASIC has sought from the court pecuniary penalties against ANZ and an order requiring ANZ to implement a compliance program.
Cooperation with the Regulator
The Bank’s Chief Risk Officer Nigel Williams said in a statement to the ASX, that ANZ bank had cooperated fully with the regulator’s probe and believes its allegations are:
“… based on a misunderstanding of how bank bill issuance and interest rate risk management operates and the limited case law which applies to this area. Our practices in the BBSW market were consistent with Australian market practices in wholesale financial markets and we reject ASIC’s characterization of the transactions in question.”
Comment from the Reserve Bank
In February 2016, Reserve Bank of Australia Assistant Governor Guy Debelle highlighted the shortcomings of the new system, as trading activity during the daily rate-setting window has dropped. The Council of Financial Regulators, which coordinates Australia’s main financial regulators, is considering further reforms.
Mr Debelle said in a speech of 22 February 2016:
“The low turnover in the interbank market raises the risk that market participants may at some point be less willing to use BBSW as a benchmark. “This is the motivation for the CFR’s consultation, to ensure that BBSW remains a trusted, reliable and robust financial benchmark.”
TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products.
Sources:
ASIC commences civil penalty proceedings against ANZ for BBSW conduct - 15-060MR
