ASIC benchmark report hints more skeletons yet to emerge

Bernard Kellerman
Yesterday the Australian Securities and Investments Commission released a report on financial benchmarks, while highlighting the importance of key indices to Australia's markets and the broader economy.
 
This has been an ongoing area of contention for the financial markets regulator, with further changes made almost two years ago: for instance, as of 27 September 2013 the bank bill swap rate is now electronically calculated, and as such there is no longer the need for panel banks to make submissions.
 
Ever since mid-2012, ASIC has been investigating BBSW panel bank members in relation to the integrity of their past involvement in the BBSW submission process.
 
This latest report confirmed that ASIC is continuing its investigation of financial institutions for misconduct in setting interest rate and foreign exchange benchmarks. As it said in a submission:
 
"In particular, we will examine whether financial institutions have failed to adequately supervise and control the day-to-day operations and conduct of traders and submitters. We will also investigate whether senior managers were aware of, or were complacent about, any conduct issues that may have been present," said ASIC chairman Greg Medcraft.
 
ASIC said its inquiries have drawn on the experience of its overseas counterparts, although ASIC Commissioner Cathie Armour added: "ASIC is looking at the conduct of Australian institutions here and overseas, as well as foreign financial institutions that are active in Australia." She was equally keen to say whole investigations in relation to the BBSW were ongoing and no conclusions had yet been drawn.
 
ASIC's investigations into misconduct around financial benchmarks have so far seen the agency accept enforceable undertakings from global investment banks UBS, BNP Paribas and the Royal Bank of Scotland. The banks also made voluntary contributions totalling A$3.6 million to fund independent financial literacy projects in Australia.
 
However, Medcraft was not keen on this approach. "When it comes to fines, the penalty has to be an incentive not to break the law," he said. "It has to be a multiple of the gain made or loss avoided."
 
What would be far more persuasive, though, would be to make management accountable directly for breaches of the law to "encourage" the right behaviour. "Penalties are hitting shareholders who may have had nothing to do with the breach of law," Medcraft said.
 
The full report is here: REP 440 Financial benchmarks