The federal government has announced that it will make the manipulation of any financial benchmark a criminal offence, in a bid to “better protect Australians from the possible abuse and manipulation of financial benchmarks by banks”.
Treasurer Scott Morrison says the strengthened rules regulating the bank bill swap rate (BBSW) – a key financial benchmark that serves as the reference rate for the pricing of a range of financial products, such a mortgages – will “ensure that past egregious conduct by the banks in manipulating benchmarks is prevented in the future”.
The move, announced on Tuesday, is the latest crackdown against rate rigging. The Australian Securities and Investments Commission (ASIC) has already commenced legal proceedings against three of the four major banks for alleged unconscionable conduct and market manipulation in relation to their alleged involvement in setting the bank bill swap reference rate between 2010 and 2012.
Earlier this year, it was revealed that the big four Australian banks (ANZ, CBA, NAB, and Westpac) and 32 other financial institutions were being sued in the US for monopolising trade.
Announcing the decision to tighten the regulation on the BBSW, Mr Morrison said, “This package will ensure our regulatory regime is as modern and secure as any comparable regime found in equivalent foreign jurisdictions, such as the United Kingdom and the European Union.”
The treasurer added that following his request in November 2015, the Council of Financial Regulators (CFR) consulted and provided advice to the government on options to reform the regulation of financial benchmarks.
It is these recommendations, released on Tuesday, which will be implemented.
CFR’s recommendations included:
- Requiring administrators of significant (“systemically important”) benchmarks to hold a new ‘benchmark administration’ licence issued by ASIC, unless granted an exemption;
- Empowering ASIC to develop enforceable rules for the administrators of significant benchmarks and for entities that make submissions to such benchmarks (including the power to compel submissions to benchmarks in the case that other calculation mechanisms fail); and
- Making the manipulation of any financial benchmark (significant or non-significant) or financial product used to determine a financial benchmark used in Australia (such as Negotiable Certificates of Deposit), a specific criminal and civil offence.
“The government has accepted the CFR’s recommendations and will work to implement these critical reforms over the next 18 months,” Mr Morrison said.
“The Turnbull government is absolutely committed to transparent and well-functioning markets, which are fundamental to a vibrant 21st century economy.
“These measured changes will build on the steps that the Turnbull government is already taking to strengthen our banking and financial system, including strengthening ASIC’s resources and capabilities and the establishment of a regular parliamentary inquiry into Australia’s banking and financial system.”
‘In national interest to have a benchmark administered’
ASIC, meanwhile, said the announcement is a “positive endorsement” of its position and power and “reflects favourably” on the actions it has taken to date.
ASIC Commissioner Cathie Armour told Mortgage Business: “It is in the national interest to have a benchmark administered and operated in a way where there are no perceived conflicts of interests.
"These reforms create an international comparable framework, and we think firms should be confident to work within a model framework of processes and procedures.
“It is key that our benchmarks are recognised in global markets. The Treasurer is aiming to have the regulatory regime in place when the European regime commences, so we can be confident our key benchmarks are recognised and that counter-parties from that region are permitted to deal in products that use significant Australian benchmarks."
Ms Armour added: “It is really important for all us that there is a robust benchmark regime and its essential for financial institutions to be part of that.”
[Related: Australian banks sued for monopolising trade]