ASIC today released a report on financial benchmarks. Report 440 Financial benchmarks (REP 440) highlights the importance of key indices to Australia’s markets and the broader economy.
ASIC Commissioner Cathie Armour said, ‘Financial benchmarks can have flow-on effects to ordinary investors and borrowers. For example, the Bank Bill Swap (BBSW) rate is often used in setting commercial lending rates.
‘Given their importance, it is critical to market confidence that financial benchmarks are robust and reliable.’
ASIC's report describes the regulatory reforms and other responses that have occurred internationally and in Australia in response to concerns about poor conduct in connection with financial benchmarks.
ASIC's report makes a number of recommendations for market participants, including measures they should adopt to avoid conduct issues.
Ms Armour said, ‘Financial institutions must get this right. That is, have the right culture, oversight, and incentives in place to make sure they do not abuse client trust and threaten market confidence.’
The report confirms ASIC is investigating financial institutions to test for conduct and other issues relating to financial benchmarks, such as key interest rate and foreign exchange (FX) benchmarks. ASIC’s inquiries are informed by the types of benchmark-related conduct and oversight issues that have been observed overseas. ASIC’s investigations are ongoing and no conclusions have been drawn yet.
Ms Armour said, ‘ASIC is looking at the conduct of Australian institutions here and overseas, as well as foreign financial institutions that are active in Australia.’
Background
Financial benchmarks are indices or indicators used as reference prices for financial instruments or contracts, or to measure the performance of investment funds.
ASIC’s investigations into misconduct in financial benchmarks has seen ASIC accept enforceable undertakings from UBS AG, BNP Paribas and the Royal Bank of Scotland (refer: 13-366MR, 14-014MR and 14-169MR). The institutions also made voluntary contributions totalling $3.6 million to fund independent financial literacy projects in Australia.