In an announcement this morning (9 May), it was revealed that CBA has reached an in-principle agreement with the Australian Securities and Investments Commission (ASIC) to settle the legal proceedings in relation to claims of manipulation of the Bank Bill Swap Rate (BBSW).
As part of the in-principle settlement, CBA will acknowledge that, in the course of trading on the BBSW market in Australia on five occasions between February and June 2012, CBA “attempted to engage in unconscionable conduct in breach of the ASIC Act”.
CBA will also acknowledge it did not have adequate policies and systems in place to monitor the trading and communications of its staff in order to prevent that conduct from occurring.
This comes after the major bank disputed several of the claims laid against it by ASIC.
Despite the admission, however, the big four bank will only need to pay a $5 million penalty for the breach.
Should the settlement be approved by the Federal Court, CBA will also pay $15 million to a financial consumer protection fund and another $5 million towards ASIC’s costs of the litigation and its investigation.
The impact of this settlement will be reflected in CBA’s 2018 financial year results.
CBA has also agreed to enter into an enforceable undertaking with ASIC, under which an independent expert will be appointed to review controls, policies, training and monitoring in relation to its BBSW business.
The announcement was made on the same day that the major bank released its trading update for the quarter ending 31 March 2018.
While the bank said that the credit quality of the group’s lending portfolios “remained sound”, the figures showed that there had been an uptick in home loan arrears. Consumer mortgage arrears that were 90 days or more behind payment rose from 0.59 per cent in December 2017 to 0.65 per cent by the end of March 2018.
The bank said: “Consumer arrears were seasonally higher in the quarter.
“There has been an uptick in home loan arrears, influenced by a small number of customers experiencing difficulties with rising essential costs and limited income growth.”
Troublesome and impaired assets also increased to $6.6 billion.
The bank said: “A small number of credits drove the increase in troublesome exposures over the quarter, with impaired assets stable.”
Overall for the quarter, unaudited statutory net profit was approximately $2.30 billion while unaudited cash net profit was approximately $2.35 billion.
It added that underlying operating expenses were higher due to increased provisions for regulatory/compliance project spend, with operating expenses increasing by 3 per cent and operating income decreasing by 4 per cent.
Volume growth was offset by a slight decline in Group Net Interest Margin due to customer switching from interest-only to principal and interest home loans as well as higher basis risk. Other banking income was lower, driven by lower treasury and trading performance as well as seasonally lower card fee income.
It has been a tumultuous year for the big four bank, with the reputation of the bank impacted dramatically by the BBSW allegations, as well as reports that it lost the personal bank details of almost 20 million customers, APRA’s conclusion that the bank had “inadequate oversight”, “unclear accountabilities” and “a widespread sense of complacency”, misconduct by financial advisers, mis-selling of insurance, and allegations that it repeatedly breached anti-money laundering and counter-terrorism laws.