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Monday 23 December 2013

13-366MR ASIC accepts enforceable undertaking from UBS

ASIC today accepted an enforceable undertaking (EU) from UBS AG (UBS) in relation to potential misconduct involving the Australian Bank Bill Swap Rate (BBSW).

UBS will also make a voluntary contribution of $1 million to fund independent financial literacy projects in Australia.

In July 2012, UBS reported to ASIC that it had found evidence of conduct seeking to influence its BBSW submissions, based on how the submissions may benefit UBS' derivatives positions. In February 2013, UBS withdrew from the BBSW submissions panel.

The EU requires UBS to ensure its participation in relation to the setting of Australian interest rate benchmarks upholds the integrity and reliability of those benchmarks and are in accordance with its obligations under the Commodity Futures Trading Commission (CFTC) Orders.

At ASIC's request, UBS engaged an independent expert to conduct a review of BBSW submissions. The expert found that any market impact was insignificant.

ASIC Commissioner Cathie Armour said, ‘Organisations must have the correct procedures in place to ensure this type of conduct does not occur. Enforceable undertakings are a timely, effective way to ensure significant cultural and organisational change’.

Download the EU


The BBSW is the primary interest rate benchmark used in the Australian financial markets. Prior to 27 September 2013, it was calculated based on submissions made by up to 14 panel banks to the Australian Financial Markets Association (AFMA), who are responsible for administering the published BBSW rate.

The calculation of BBSW substantially differs from the method that is used to calculate the London Interbank Offer Rate (LIBOR), in that BBSW submissions were required to be based on the panel banks' view of the average mid-rate for Reference Bank Bills, which are of similarly high credit standing, at a particular point in time each day as opposed to a subjective view of the bank's cost of obtaining unsecured funding from other banks.

On 19 December 2012, the United States Commodity Futures Trading Commission (CFTC) issued orders against UBS AG and UBS Securities Japan Co Ltd in relation to misconduct in respect of the LIBOR. These orders involved undertakings by UBS as to the integrity and reliability of its benchmark interest rate submissions globally.

Since July 2012, UBS has been fully cooperating with ASIC in relation to ASIC's investigation into the reported conduct. ASIC acknowledges this cooperation, and also acknowledges that UBS was the first panel bank to report this conduct to ASIC.

ASIC's inquiries in relation to the BBSW submission process

Since mid-2012, ASIC has been undertaking inquiries of BBSW panel bank members in relation to the integrity of their past involvement in the BBSW submission process. ASIC's inquiries in relation to the BBSW rate set are ongoing.

As of 27 September 2013 the BBSW is now electronically calculated, and as such there is no longer the need for panel banks to make submissions.

ASIC is closely monitoring international developments in relation to benchmarks, including the work of the Benchmarks Task Force established by the International Organization of Securities Commissions (IOSCO). ASIC is participating in this task force.