David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

If a tree falls in the forest and no one's around, does it make a sound? If a bank tries to manipulate an interest-rate benchmark and gets off with a slap on the wrist, does it make a difference?

The question is worth asking because the Australian Securities and Investments Commission, or ASIC, seems to be moving toward just such a deal with banks accused of attempting to rig the bank bill swap rate, the country's homebrew answer to Libor.

A preliminary settlement with National Australia Bank Ltd. was reached late Friday, under which the bank will pay A$50 million ($38 million) over 12 attempts to break the country's securities laws. Australia & New Zealand Banking Group Ltd. will also settle, a court said Monday, with final approval of the agreement set for next month. Only A$10 million of NAB's sum is a penalty; the rest consists of the bank paying ASIC's costs and a A$20 million donation to a consumer-protection fund. The spare 0.2 percent gain in NAB's shares Monday, trailing the broader S&P/ASX 200 index, suggests investors weren't seriously contemplating anything more punitive.

First the Good News
National Australia Bank shares ticked up Monday. Details of its settlement with ASIC were released after Friday's A$32.62 close
Source: Bloomberg
Note: Intraday times are displayed in ET.

One thing that's notable about NAB's settlement is what it doesn't claim. The lender isn't admitting to complaints by ASIC of misleading or deceptive conduct and creation of artificial market prices. The only admissions are of breaches of the bank's financial services licence and an attempt to "engage in unconscionable conduct" -- a notoriously hard-to-prove standard which has, for instance, protected a casino in a case where it had offered rebates and the use of a private jet to a problem gambler who went on to lose A$20.5 million at its tables.

The shape of this agreement is oddly reminiscent of the Australian Financial Review's prediction last week that ANZ was seeking a settlement designed to limit the risk of lawsuits from customers:

While the details of the settlement will emerge in time, we do know that the banks were reluctant to admit guilt because it opened them up to class actions at the hands of affected customers.

So it's safe to assume that the agreement is structured to limit the prospect that ANZ, and the other banks should they settle, will go straight from one courtroom to another.

In other words: In return for paying out some pocket change, the lenders want a settlement that won't mess up their defense against other litigants -- a matter that really shouldn't be any concern of the regulator.

The contrast with the Libor scandal couldn't be more stark: While that case was more egregious, involving collusion between financial institutions that isn't being alleged in the Australian situation, the investigations into Libor resulted in $9 billion of fines, without any side-deals being offered on third-party lawsuits.

The lighter touch in Australia been good for the country's banks. The value of legal settlements against them since the start of 2009 is equivalent to just 0.3 percent of net income, according to data compiled by Bloomberg, compared with 16 percent at U.S. banks, 45 percent in the U.K. and even higher relative figures in Germany and Italy. Among wealthy countries, only lenders in Canada and Japan got off more lightly:

This Is Fine
The value of legal settlements paid out by Australian banks since the financial crisis is among the smallest in the world as a share of profits
Source: Bloomberg
Note: Shows value of reported legal settlements as a share of reported net income since the start of 2009. Only banks with at least $500 billion in total assets have been included, and only countries with at least two banks of that size have been shown. Chart cropped at 50% for scaling reasons. Negative figure in Italy is because banks have made aggregate losses over the period.

ASIC isn't alone in donning velvet gloves. One of the less-remarked-on aspects of the case against Commonwealth Bank of Australia brought by Austrac, the money-laundering regulator, in August is that almost two years elapsed between the agency first discovering some of the main alleged activity and a case being brought to court.

To some extent, ASIC's hands are tied. Its powers of enforcement are weak: The maximum penalty it's allowed to levy in civil cases for violations of Australia's Corporations Act is just A$1 million, and the costs of bringing suits through the courts can be substantial, giving the agency a strong incentive to settle for whatever it can get.

A government report last week concluded that the regulator should instead be allowed to demand fines equivalent to 10 percent of annual revenue, or three times the benefits obtained by the misconduct.

The change can't come soon enough for ASIC, for the public, and for the banks themselves. In the absence of regulators with the power to keep the financial industry's lawn trimmed, a host of populist weeds have grown up instead: The federal opposition calls for a high-level inquiry into the banking system. The government resists those calls, but puts executives in the stocks at periodic parliamentary hearings instead.

A federal levy is imposed on the banks' balance sheets in the worthwhile cause of financial stability, but the money is put into the government's general revenues rather than a resolution fund. Cash-strapped state governments start proposing their own levies. It's a mess.

Bank executives and shareholders may fear the prospect of a beefed-up regulator, but they have much more to gain than to lose. In a competitive market, lenders need strong rules to help them resist the temptation to take advantage. When the penalties for misconduct are weak, it's probity that ends up being punished.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Westpac Banking Corp. will take its case to trial and ASIC hasn't brought a complaint against Commonwealth Bank of Australia to date.

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David Fickling in Sydney at

To contact the editor responsible for this story:
Paul Sillitoe at