Australia's next financial scandal may be brewing, with the Australian
Securities and Investments Commission (ASIC) currently investigating the big
four banks regarding interbank interest rate rigging. The corporate regulator
has been looking into fixing since 2012, with banks tight lipped as
investigations enter an advanced stage. With Commission chairman Greg Medcraft
recently telling the banks to "Plead guilty", it will be interesting
to see how this case progresses over the next few months.
Back in 2012, the London Interbank Offered Rate (Libor) was found to have been systematically manipulated by staff at some of the world's biggest financial institutions. Soon after, ASIC started investigating Australia's key benchmark interest rate, the Bank Bill Swap Rate (BBSW), looking for similar manipulation. Having already secured voluntary contributions of $1.6 million from Royal Bank of Scotland, and $1 million from UBS and BNP Paribas, the big four banks are now in ASIC's sights.
ANZ suspended seven traders in the early stages of the investigation back in November 2014, with Australia's other big banks yet to make a move. In a comment to the Sydney Morning Herald, a NAB spokesperson said the bank "is co-operating with ASIC as part of its industry-wide investigation." A spokesperson for Westpac said "along with a number of banks, [Westpac] is continuing to cooperate with an industry-wide investigation by ASIC into trading practices relating to the bank bill swap rate", with Commonwealth declining to comment on the matter.
The importance of this investigation cannot be underestimated, with Labor Senator Sam Dastyari saying "This is the largest investigation of its type ever... It may lead to some of the largest ever fines and conditions placed on an Australian bank." and be the "largest financial scandal of its kind in Australia... This is huge." said Dastyari, adding "My sources within ASIC... seem fairly confident that they are on the verge of what will perhaps be the largest ever civil penalties process of its kind."
While the BBSW is now electronically calculated from market data collected by AFMA, this is a relatively new development. Before September 2013, BBSW was based on manual submissions to the Australian Financial Markets Association (AFMA) by up to 14 banks who quoted the interest rate they were paying and receiving at 10:00am each business day. ; ASIC has been given a growing $80 million budget to fight legal battles that may arise from their pending decision, with Mr Medcraft from the Commission saying "Governments have given us this money to be there to not be reluctant to take action on behalf of Australians."
You begin to understand the importance of this investigation when you realise it's impossible to manipulate rates on your own. If one bank is involved, it's a pretty good bet that all are involved, with a guilty ruling set to impact the entire banking system. "If there is rate rigging that has gone on, this is not a victimless act," said Senator Dastyari, adding "The victims of this are every Australian business and every Australian family."
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