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ASIC commences civil penalty proceedings against CBA

On Tuesday, 30 January, ASIC commenced legal proceedings in the Federal Court in Melbourne against Australia’s largest lender for unconscionable conduct and market manipulation. 

The case revolves around the bank’s alleged involvement in setting the bank bill swap reference rate (BBSW) between 31 January 2012 and October 2012.

The BBSW is the primary interest rate benchmark used in Australian financial markets and was administered by the Australian Financial Markets Association (AFMA) during the relevant period.

On 27 September 2013, AFMA changed the method by which the BBSW is calculated. The conduct that the proceedings relate to occurred before this change in methodology. Since 1 January 2017, ASX Limited has been the administrator of the BBSW, introducing a new Volume Weight Average Price (VWAP)–based calculation methodology.

“During the relevant period, CBA had a large number of products which were priced or valued off BBSW,” ASIC said in a statement.

The regulator alleges that on three specific occasions, CBA traded with the intention of affecting the level at which BBSW was set so as to maximise its profits or minimise its losses to the detriment of those holding positions opposite to CBA’s.

ASIC alleges it was unconscionable for CBA to trade in this way, and also to enter into products priced off the BBSW without disclosing its trading practices to its customers and counterparties.

ASIC further alleges that CBA’s trading created an artificial price and a false appearance with respect to the market for some of these products.

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The financial services regulator is seeking declarations that CBA contravened s12CA, s12CB, s12DA, 12DB and s12DF of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), s912A(1), s1041A, s1041B and s1041H of the Corporations Act 2001 (Cth) (Corporations Act).

Further, ASIC has sought from the court pecuniary penalties against CBA and an order requiring CBA to implement a compliance program.

ASIC commenced legal proceedings in the Federal Court against ANZ on 4 March 2016 and against NAB on 7 June 2016.

On 10 November 2017, 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.

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 5 April 2016, ASIC commenced legal proceedings in the Federal Court against Westpac. The matter is awaiting judgment.

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