ANZ Bank Taken to Court by ASIC Over Alleged Rate Rigging

  • ASIC accuses bank of trying to set artificial bank bills price
  • Lender denies allegation, will `vigorously defend' the claim

Australia’s securities regulator said it has started legal proceedings against Australia & New Zealand Banking Group Ltd. for allegedly manipulating the nation’s benchmark interest rate -- the first court action in a more-than-three-year probe across the banking industry.

Civil penalty proceedings have commenced against the bank in the Federal Court in Melbourne, the Australian Securities & Investments Commission said in a statement Friday. The regulator alleges that ANZ Bank “traded in a manner intended to create an artificial price for bank bills” on 44 separate days from March 2010 to May 2012.

The Melbourne-based lender said it would “vigorously defend” the action.

The regulator has been investigating the setting of the bank-bill swap rate -- the local equivalent of Libor that’s also known as BBSW -- since mid-2012 and has previously criticized a lack of cooperation from the nation’s banks. The investigation led to the suspension of seven traders at ANZ Bank in November 2014 and voluntary contributions of a combined A$3.6 million ($2.7 million) toward financial literacy projects from Royal Bank of Scotland Group Plc, UBS Group AG and BNP Paribas SA.

Bank Bill Market

ASIC alleges that on the days in question, the lender “had a large number of products which were priced or valued off BBSW and that it traded in the bank bill market with the intention of moving the BBSW higher or lower,” according to the statement. The regulator “alleges that ANZ was seeking to maximize its profit or minimize its loss to the detriment of those holding opposite positions to ANZ’s.”

ANZ Bank said it had cooperated fully with the regulator’s probe and believes its allegations are “based on a misunderstanding of how bank bill issuance and interest rate risk management operates and the limited case law which applies to this area.”

“Our practices in the BBSW market were consistent with Australian market practices in
wholesale financial markets and we reject ASIC’s characterization of the transactions in
question,” the bank’s Chief Risk Officer Nigel Williams said in a statement to the ASX.

Shares Drop

The bank’s shares responded sharply to the news, with gains trimmed as much as 0.8 percent in the five minutes after ASIC issued the statement. They traded 1.2 percent higher at A$25.09 at 3:42 p.m. in Sydney.

ASIC is seeking declarations that ANZ Bank contravened sections of the Australian Securities and Investments Commission Act and the Corporations Act. It is also seeking pecuniary penalties against the bank and an order from the court requiring the lender to implement a compliance program, according to the statement.

“While ASIC’s investigations are three years in the making, it is still too early to judge what the ramifications will be as a result,” Matthew Windle, a Sydney-based senior markets analyst at research firm East & Partners Pty, said by e-mail. “The key outcome will be to ensure that bank customers and financial markets as a whole can be confident that it is a transparent market place that they are operating in.”

Global Fines

Probes into the rigging of foreign-exchange markets and interest-rate benchmarks have led to lenders across the globe paying billions of dollars in fines and an overhaul of how such rates are set.

Australia changed its rate-setting regime in 2013, following the global Libor-rigging scandal. It scrapped a 14-bank panel that made submissions on BBSW and moved to a system where the benchmark is compiled using prices sourced from approved interbank trading platforms.

Reserve Bank of Australia Assistant Governor Guy Debelle last month highlighted the shortcomings of the new system, as trading activity during the daily rate-setting window has dropped. The Council of Financial Regulators, which coordinates Australia’s main financial regulators, is considering further reforms.

“The low turnover in the interbank market raises the risk that market participants may at some point be less willing to use BBSW as a benchmark,” Debelle said in a Feb. 22 speech. “This is the motivation for the CFR’s consultation, to ensure that BBSW remains a trusted, reliable and robust financial benchmark.”

ANZ Bank said the legal action is “likely to take a considerable time to reach a resolution through the courts and the matter of penalties is uncertain.”

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