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Government hikes market manipulation penalties for financial sector

Government hikes market manipulation penalties for financial sector

Financial institutions found guilty of rigging financial benchmarks or a product used to determine benchmarks will be slapped with civil and criminal penalties of up to $9.45 million under new legislative reforms.

The penalties also apply to foreign nationals and institutions even if the misconduct takes place overseas, resulting in an Australian entity suffering a disadvantage.

The amended Corporations Act 2001 (Cth) additionally stipulates that individuals found to have engaged in such misconduct will face fines of up $945,000 or 10 years imprisonment.

Benchmarks are used to help value trillions of dollars of financial products or contracts, as well as to measure investment fund performance, Australian Treasurer Scott Morrison said. However, they have proven to be a “weak spot in the international system of financial regulation”.

“There have been many cases of market misconduct regarding the determination of financial benchmarks, such as the London Interbank Offer Rate, all around the world,” the Treasurer noted.

Administrators of significant benchmarks will also be required to hold a “benchmark administrator” licence and comply with obligations established by the Australian Securities and Investments Commission (ASIC).

ASIC has been granted the authority to demand submission to a significant financial benchmark “as a last resort” in instances where other calculation mechanisms have failed and the continued generation of the benchmark is threatened, Mr Morrison said.

“I am pleased these reforms will bolster critical components of our market architecture and improve the integrity, resilience and fairness of the Australian financial system,” the Treasurer said.

“Furthermore, they will align our regulatory regime with international best practice, including regimes in the United Kingdom, the European Union, Japan, Singapore and Canada.”

Mr Morrison clarified that the reforms exclude “legitimate business activity that has the effect of moving a benchmark (but not the intent)”.

ASIC had already commenced legal proceedings against the big four banks for alleged market manipulation and unconscionable conduct in relation to the bank bill swap rate, which is the primary interest rate benchmark used to price billions of dollars of loans across Australia.

ANZ had reportedly reached a settlement of $50 million, which was criticised by RateSetter CEO Daniel Foggo as being “a light slap on the wrist” compared to the “billions of dollars in profit [that] the bank makes every year, and the billions in fines handed out to UK banks for similar misconduct”.

[Related: CCR legislation introduced into Australian Parliament]

Government hikes market manipulation penalties for financial sector
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