Australian banks sanctioned by regulator over FX market conduct

[SYDNEY] Two of Australia's largest banks vowed to toughen oversight of their foreign-exchange practices and each pay A$2.5 million (S$2.6 million) to the nation's financial literacy fund after a regulator found inappropriate conduct in their currency trading divisions.

Commonwealth Bank of Australia and National Australia Bank Ltd said they entered into a so-called enforceable undertaking with the Australian Securities & Investments Commission to make changes to their foreign-exchange systems, controls and supervision. An enforceable undertaking is an Australian legal device that is sometimes used as an alternative to civil action by the regulator.

The commission said the agreement arose from its investigation of incidents between January 2008 and June 2013 in which the banks "failed to ensure that their systems and controls were adequate to address risks relating to instances of inappropriate conduct identified by ASIC."

Questionable conduct identified by the regulator included: On several occasions, an NAB employee on an offshore spot foreign-exchange desk, acting with an employee of another Australian bank, shared confidential information and entered offers into the trading platform without any apparent legitimate commercial reason for doing so.

On two occasions, CBA employees on an offshore spot foreign-exchange desk acquired proprietary positions in a currency after finding out about large fix orders by the bank in that currency.

The agreement comes just weeks after Macquarie Bank Ltd and Australia & New Zealand Banking Group Ltd agreed to pay a combined A$15 million in fines concerning attempted cartel conduct in relation to conversations around the setting of a benchmark Malaysian interest rate in 2011.

ANZ, NAB and Westpac Banking Corp are also contesting civil legal action by the commission over the alleged manipulation of the country's swap rate, the local equivalent of Libor. The proceedings are slated for September next year.

BLOOMBERG