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Federal Court approves CBA’s $20m settlement over BBSW manipulation

by Tas Bindi4 minute read
CBA, Commonwealth Bank of Australia

The Federal Court has approved Commonwealth Bank’s $20 million settlement with ASIC for manipulating the bank bill swap rate (BBSW).

The Australian Securities and Investments Commission (ASIC) commenced legal proceedings against Commonwealth Bank in January for its involvement in rigging the BBSW in its favour.

In May, the parties had reached an in-principle agreement to settle the claims, which the Federal Court has approved, according to the major bank’s disclosure to the Australian Securities Exchange (ASX).

The settlement will see CBA pay a penalty of $5 million, in addition to $15 million to a financial consumer protection fund and a further $5 million to cover ASIC’s litigation and investigation costs.

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Commonwealth Bank has also agreed to enter into a court enforceable undertaking to prevent future market manipulation.

In its disclosure to the ASX, CBA said that the undertaking will see an independent expert be appointed to “review controls, policies, training and monitoring in relation to its BBSW business”.

In May, the Federal Court ruled that Westpac attempted to manipulate the BBSW on four occasions identified by ASIC, but ultimately failed.

The court concluded that the major bank acted unconscionably as it “traded with the dominant purpose of influencing yields of traded Prime Bank Bills and where BBSW is set in a way that was favourable to its rate set exposure”.

However, presiding judge Justice Jonathan Beach said that ASIC was not able to adequately show that the bank violated the Corporations Act across the four occasions it identified.

The Westpac ruling followed the court declaring in late 2017 that ANZ Bank and National Australia Bank (NAB) each attempted to rig the BBSW on certain dates, and that they failed to do what’s necessary to ensure they provided financial services honestly and fairly.

ANZ and NAB agreed to pay $50 million each, and on top of those penalties, each bank has signed a court enforceable undertaking to deter a repeat of the misconduct. One condition of each undertaking is for the bank to introduce a mandatory face-to-face training program, which must be run by an external and independent provider, and include a compulsory test.

On 21 May 2018, the new BBSW calculation methodology commenced, calculating directly from market transactions during a longer rate-set window and involving a larger number of participants. This means that the benchmark is anchored to real transactions at traded prices.

[Related: CBA apologises for children’s bank account manipulation]

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Tas Bindi

Tas Bindi

AUTHOR

Tas Bindi is the features editor for The Adviser magazine. 

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