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ASIC warns Australian banks about interest rate benchmarks

[SYDNEY] Australia's corporate watchdog Wednesday outlined details of its investigation into possible manipulations of interbank lending as it warned banks to be mindful of how they set interest rate benchmarks.

Similar investigations in the US and UK have resulted in massive fines this May for six major global banks. The fines total nearly US$6 billion for rigging the foreign exchange market and Libor, the London interbank offered rate.

The Australian Securities and Investments Commission (ASIC), which is examining trading practices from 2007 to 2013 in interbank lending, known as the bank bill swap rate market, said it was probing the same issues raised in those investigations.

In a report, ASIC said it was investigating possible misconduct relating to trading to move a benchmark rate so that a bank benefits, for instance through the increase in value of a derivative position, and inappropriate handling of client orders or positions such as deliberately triggering stop-loss orders.

The investigation is also looking at possible disclosures of confidential client information, for example to traders at rival banks, and making submissions that might reduce the financial institution's borrowing costs.

ASIC chairman Greg Medcraft last month blasted banks for their "absolutely appalling" behaviour towards his probe and called on them to step up their cooperation.

He told a Senate hearing financial institutions were delaying their responses to requests for information and were also reluctant to hand over chat room transcripts.

"Our inquiries are still underway and, given the size and complexity of the relevant markets, will take some time to complete," ASIC added in the report.

The watchdog said it was also looking at potential misconduct stemming from oversight failures, corporate tolerance of non-compliance or poor practices and poorly designed incentives.

Medcraft has not named the institutions being investigated.

One of Australia's biggest banks ANZ in November suspended seven traders pending the outcome of the ASIC investigation, which could result in civil and criminal penalties.

Global banks RBS, UBS and BNP Paribas were fined between Aus$1 million (US$740 million) and Aus$1.6 million by ASIC for potential misconduct involving the bank bill swap rate in 2013 and 2014.

AFP