Case note: reasons for BBSW Penalties against NAB and ANZ

In Australian Securities and Investments Commission v National Australia Bank Limited [2017] FCA 1338 and Australian Securities and Investments Commission v Australia and New Zealand Banking Group Limited Justice Jagot of the Federal Court set out her reasons for the penalties imposed on NAB and ANZ for the following admitted offences:

  • that they each attempted to manipulate the Bank Bill Swap Reference Rate (BBSW) to their own advantage and to the disadvantage of counterparties and thereby attempted to engage in unconscionable conduct in connection with the supply of financial services; and
  • that they each failed to do all things necessary to ensure that they provided financial services honestly and fairly, including by not providing employees engaged in providing those services with adequate training.

Justice Jagot ordered that each bank pay a pecuniary penalty in the sum of $10 million; the maximum penalty for all of NAB’s contraventions was $13.2 million (12 attempts at a maximum of $1.1 million each) and the maximum penalty for all of ANZ’s contraventions was $11 million (10 attempts at a maximum of $1.1 million each).

She also noted that each bank had given an enforceable undertaking to ASIC to pay $20 million to a Financial Consumer Protection or similar Fund or Funds and to pay ASIC’s investigations costs of $20 million, (a total of $50 million each).

NAB Enforceable Undertaking

ANZ Enforceable Undertaking

Amongst other things, the banks and ASIC agreed that their contraventions involved attempts to change where BBSW was set, in circumstances where BBSW was a key benchmark interest rate in financial markets in Australia.

After considering the agreed statement of facts between the parties Justice Jagot concluded:

“It may be thought that penalties of around 76% of the maximum penalty for NAB and 91% of the maximum penalty for ANZ are severe. They are and they ought to be. NAB and ANZ, in this one regard at least, are to be commended for accepting that their conduct requires the imposition of penalties at the higher end of the range despite the obligations each has accepted in the enforceable undertakings and the costs agreements.

Each of NAB and ANZ has admitted to unethical and dishonest conduct. It is difficult to convey the seriousness of what the attempts involved. Knowing the function of the BBSW in the Australian financial system and that it was relied upon as an independently established benchmark throughout the system, employees of NAB and ANZ deliberately sought to manipulate that benchmark to advantage their employer (and their own performance) over counterparties who had no means of protecting themselves from the effects of such manipulation, and had a right to expect that NAB and ANZ would deal with them fairly, honestly, and in good faith.

From the perspective of the counterparties, the conduct involved gross departures from basic standards of commercial decency, honesty and fairness.

From the broader perspective of the Australian financial system, a system which depends on public and institutional trust in its integrity, the conduct was even worse.

That any employee performing these kinds of functions within a bank, let alone two pillars of Australia’s banking system, could have conceived of manipulating the BBSW, and in fact attempted to do so repeatedly over such periods of time bespeaks fundamental failings in the culture, training, governance and regulatory systems of both NAB and ANZ. The public should be shocked, dismayed and indeed disgusted that conduct of this kind could have occurred. The conduct involved attempts to corrupt a fundamental component of the entire Australian financial system for mere short term commercial advantage. The conduct involved a repeated failure to fulfil what would generally be perceived as the most basic standards of honesty, fairness and commercial decency, let alone the standards that would properly be expected of these two banks. The conduct tends to undermine public confidence in the entirety of the Australian financial system.

To achieve the object of protecting and promoting the public interest in securing compliance with the law, penalties at the higher end of the available scale, as have been agreed, are essential.

I accept the apologies of each of NAB and ANZ for these serious contraventions.

I accept that ASIC has given careful consideration to the resolution of both proceedings and considers the resolutions, on the facts, admissions and terms agreed, to be appropriate and in the public interest.

Given the enforceable undertakings and the agreements as to costs, I am prepared to accept the single pecuniary penalty agreed for all contraventions by each of NAB and ANZ…”.

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