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18-024MR ASIC commences civil penalty proceedings against Commonwealth Bank of Australia for BBSW conduct
ASIC has today commenced legal proceedings in the Federal Court in Melbourne against the Commonwealth Bank of Australia (CBA) for unconscionable conduct and market manipulation in relation to CBA's 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 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 opposite positions 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 also alleges that CBA's trading created an artificial price and a false appearance with respect to the market for some of these products.
ASIC 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 will be making no further comment at this time.
ASIC commenced legal proceedings in the Federal Court against the Australia and New Zealand Banking Group (ANZ) on 4 March 2016 (refer: 16-060MR) and against National Australia Bank (NAB) on 7 June 2016 (refer: 16-183MR).
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 (refer:  FCA 1338).
On 20 November 2017, ASIC accepted enforceable undertakings from ANZ and NAB which provides 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 (refer: 17-393MR).
On 5 April 2016, ASIC commenced legal proceedings in the Federal Court against the Westpac Banking Corporation (Westpac) (refer: 16-110MR). The matter is awaiting judgment.
ASIC has previously accepted enforceable undertakings relating to BBSW from UBS-AG, BNP Paribas and the Royal Bank of Scotland (refer: 13-366MR, 14-014MR, 14-169MR). The institutions also made voluntary contributions totaling $3.6 million to fund independent financial literacy projects in Australia.
In July 2015, ASIC published Report 440, which addresses the potential manipulation of financial benchmarks and related conduct issues.
The Government has recently introduced legislation to implement financial benchmark regulatory reform and ASIC has consulted on proposed financial benchmark rules.