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Fed Court finds major bank engaged in ‘unconscionable conduct’

Justice Beach of the Federal Court today found that a major lender engaged in unconscionable conduct under s12CC of the Australian Securities and Investments Commission Act 2001 (Cth) by its involvement in setting the Bank Bill Swap Reference Rate (BBSW) on four occasions.

In civil proceedings brought by ASIC, the court found that on these occasions, Westpac traded with the dominant purpose of influencing yields of traded Prime Bank Bills and where BBSW set in a way that was favourable to its rate set exposure.

The court also found that Westpac had inadequate procedures and training and had contravened its financial services licensee obligations under s912A(1)(a), (c), (ca) and (f) of the Corporations Act 2001 (Cth).

His Honour said in his judgment: “Westpac’s conduct was against commercial conscience as informed by the normative standards and their implicit values enshrined in the text, context and purpose of the ASIC Act specifically and the Corporations Act generally.”

A further hearing of this proceeding on penalty and relief will be held on a date to be determined.

ASIC commenced legal proceedings in the Federal Court against the Australia and New Zealand Banking Group (ANZ) on 4 March 2016 and against National Australia Bank (NAB) on 7 June 2016.

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On 10 November 2017, the Federal Court made declarations that ANZ and NAB each had attempted to engage in unconscionable conduct in attempting to seek to change where the BBSW was set on certain dates, and that each bank failed to do all things necessary to ensure that they provided financial services honestly and fairly. The Federal Court imposed pecuniary penalties of $10 million on each bank.

On 20 November 2017, ASIC accepted enforceable undertakings from ANZ and NAB which provide for both banks to take certain steps and to pay $20 million to be applied to the benefit of the community, and that each will pay $20 million towards ASIC’s investigation and other costs.

On 30 January 2018, ASIC commenced legal proceedings in the Federal Court against the Commonwealth Bank of Australia (CBA).

On 8 May 2018, CBA announced that ASIC and CBA reached an in-principle agreement to settle ASIC’s claims. CBA and ASIC will be making an application to the Federal Court for approval of the settlement.

On 21 May 2018, the new BBSW calculation methodology commenced, calculating directly from market transactions during a longer rate-set window and involving a larger number of participants. This means that the benchmark is anchored to real transactions at traded prices.

Fed Court finds major bank engaged in ‘unconscionable conduct’
Scales of Justice
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