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BBSW – ASIC accepts Enforceable Undertakings

ASIC has accepted enforceable undertakings (EUs) from both NAB and ANZ to rectify conduct regarding the Bank Bill Swap Rate (BBSW).

In 2016, ASIC brought proceedings in the Federal Court against NAB and ANZ alleging unconscionable conduct in respect of the BBSW between 2010 and 2012. The EUs form part of the resolution of those proceedings. The EUs were accepted by ASIC on 20 November 2017.

What is an EU?

An EU is an administrative settlement between ASIC and a person or company in lieu of civil court action. The applicant must convince ASIC that the EU will satisfactorily rectify the problem and cover how the applicant’s actions will change. EUs may also require the applicant to perform community service obligations, particularly when their actions have harmed investors and consumers. All EUs are made public, and act as deterrents to other potential wrong-doers.

What is the BBSW?

The BBSW is a measure of bank bills. It is determined by the average of BBSW panellists’ opinions on the bid and offer rates of bank bills as at 10:00 am eastern time on each Sydney business day. There are many financial products that have prices directly affected by the BBSW including interest rate swaps, forward rate agreements, asset swaps and commercial loans. At the time of the relevant period for the EUs, being 8 June 2010 to 24 December 2012, the Australian Financial Markets Association (AFMA) facilitated the setting of the BBSW. That task is now done by the ASX.

What did NAB and ANZ allegedly do wrong?

NAB and ANZ are BBSW panellists and are both able to affect the BBSW each day. Both banks also had employees who entered into BBSW reference products. ASIC’s primary concern was that this created a conflict of interest, and alleged that NAB and ANZ traded in Bank Bills with the intent of affecting the BBSW so as to benefit from their exposure to the BBSW.

What did the court say?

The Federal Court made declarations on 10 November 2017 that ANZ and NAB had attempted to engage in unconscionable conduct by attempting to change where the BBSW was set on certain dates. The Court imposed pecuniary penalties of $10 million each.

What is in the EUs?

The EUs provide that the banks will take steps to ensure similar conduct doesn’t happen again. This includes preparing BBSW programs at the banks to be assessed by an independent expert, as well as compliance training for employees who were involved in the incidents. The BBSW programs will address the banks’ changes to their BBSW controls, including policies, procedures, training, monitoring and supervision of employees, with the aim of preventing, detecting and responding to attempts seeking to change where the BBSW is set.

The Banks will also each pay $20 million into a financial consumer protection fund or funds nominated by ASIC by 31 March 2018, as well as $20 million each towards the cost of ASIC’s investigation and other costs.

ASIC’s proceedings against Westpac related to the BBSW are ongoing.

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