ASIC accepts enforceable undertakings from ANZ and NAB

The Australian Securities and Investments Commission has entered into enforceable undertakings with the two major banks over their “unconscionable conduct” in the Australian interbank bank bill swap (BBSW) market.

Earlier this month, the Federal Court of Australia had approved a settlement for ANZ and NAB that would require the major banks to each pay a total of $50 million.

The monetary sanction comprises $20 million to cover ASIC’s costs, $20 million to a Financial Consumer Protection Fund and a $10 million penalty.

The financial services regulator has now entered into the enforceable undertakings (EUs) with the two banks, following the court’s judgment that ANZ and NAB had attempted to engage in “unconscionable conduct”, in connection with the supply of financial services, in attempting to seek to change where BBSW was set on certain dates.

For ANZ, this was alleged to have happened on 10 occasions in the period of 9 March 2010 to 25 May 2012, and in respect of NAB, this was said to have occurred on 12 occasions in the period of 8 June 2010 to 24 December 2012.

The court also declared that each bank failed to do all things necessary to ensure that they provided financial services honestly and fairly.

The public should be ‘shocked, dismayed and indeed disgusted’

In her judgment on 10 November, the Hon Justice Jayne Jagot concluded: “It may be thought that penalties of around 76 per cent of the maximum penalty for NAB and 91 per cent of the maximum penalty for ANZ are severe. They are and they ought to be.

“NAB and ANZ, in this one regard at least, are to be commended for accepting that their conduct requires the imposition of penalties at the higher end of the range despite the obligations each has accepted in the enforceable undertakings and the costs agreements.”

However, Justice Jagot noted that both of the banks had “admitted to unethical and dishonest conduct”.

“It is difficult to convey the seriousness of what the attempts involved,” Judge Jagot said.

“Knowing the function of the BBSW in the Australian financial system and that it was relied upon as an independently established benchmark throughout the system, employees of NAB and ANZ deliberately sought to manipulate that benchmark to advantage their employer (and their own performance) over counterparties who had no means of protecting themselves from the effects of such manipulation, and had a right to expect that NAB and ANZ would deal with them fairly, honestly and in good faith.”

She lambasted the conduct as “gross departures from basic standards of commercial decency, honesty and fairness” and the employees from “two pillars of Australia’s banking system” for “manipulating the BBSW”, stating that it “bespeaks fundamental failings in the culture, training, governance and regulatory systems of both NAB and ANZ”.

The judge concluded: “The public should be shocked, dismayed and indeed disgusted that conduct of this kind could have occurred.

“The conduct involved attempts to corrupt a fundamental component of the entire Australian financial system for mere short-term commercial advantage. The conduct involved a repeated failure to fulfil what would generally be perceived as the most basic standards of honesty, fairness and commercial decency, let alone the standards that would properly be expected of these two banks. The conduct tends to undermine public confidence in the entirety of the Australian financial system.

“To achieve the object of protecting and promoting the public interest in securing compliance with the law, penalties at the higher end of the available scale, as have been agreed, are essential.”

Justice Jagot accepted the apologies of NAB and ANZ for these “serious contraventions” and their acceptance of the penalties imposed in the enforceable undertakings.

ASIC’s EU with the two banks was finalised on Monday, 20 November.

[Related: ANZ rate-rigging fine ‘doesn’t measure up’]

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Annie Kane

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