ASIC commenced legal proceedings in the Federal Court against CBA on 30 January 2018, alleging that on three specific occasions between 31 January 2012 and October 2012, CBA traded in a manner that was “unconscionable” and created an artificial price and a false appearance with respect to the market for certain financial products that were priced or valued off BBSW.
The big four bank has now entered into a court enforceable undertaking (EU) with ASIC in relation to their bank bill trading business and their participation in the setting of BBSW, which is used as a key benchmark and reference interest rate in the Australian financial system.
As part of the undertaking, CBA will pay $15 million to be applied to the benefit of the community and $5 million towards ASIC’s investigation and legal costs.
CBA will also engage an independent expert to assess changes CBA has made (and will make) to its policies, procedures, systems, controls, training, guidance and framework for the monitoring and supervision of employees and trading in Prime Bank Bills.
The move comes after the Federal Court in Melbourne imposed pecuniary penalties totalling $5 million on CBA for attempting to engage in unconscionable conduct in relation to BBSW. CBA admitted to attempting to seek to affect where BBSW set on five occasions in the period 31 January 2012 to 15 June 2012.
CBA also admitted that it failed to do all things necessary to ensure that they provided financial services honestly and fairly and that its traders were adequately trained.
A CBA spokesperson said: "On 21 June, the Federal Court of Australia approved CBA’s settlement with ASIC in relation to the trading of bank bills in connection with the Bank Bill Swap Rate (BBSW). As part of this, CBA agreed to enter into an enforceable undertaking with ASIC.
"ASIC and CBA have now agreed on the enforceable undertaking."
Justice Beach of the Federal Court noted the terms of the court enforceable undertaking and stated that, given the former penalty, the total sum that CBA is paying in relation to the matter ($25 million) should be “an adequate denouncement of and deterrence against the unacceptable trading behaviour of individuals within CBA that ought to have known better and a bank that ought to have better supervised its personnel”.
CBA’s EU is the latest progression of the BBSW saga, following proceedings in the Federal Court against the Australia and New Zealand Banking Group (ANZ), the Westpac Banking Corporation (Westpac) and the National Australia Bank (NAB).
Last year, the Federal Court made declarations that each of ANZ and NAB had attempted to engage in unconscionable conduct in attempting to seek to change where the BBSW 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.
ASIC accepted enforceable undertakings from ANZ and NAB which requires the major banks to each pay a total of $50 million.
Earlier this year, the Federal Court found that Westpac engaged in unconscionable conduct by its involvement in setting BBSW on four occasions.
A further hearing of this proceeding on penalty and relief will be held on 12 October 2018.
Following the BBSW allegations, a new BBSW methodology was launched.
The new BBSW methodology calculates the benchmark directly from market transactions during a longer rate-set window and involves a larger number of participants. This means that the benchmark is anchored to real transactions at traded prices.
[Related: CBA pays $5m penalty in BBSW settlement]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.