SYDNEY: Manipulating financial benchmarks will become a criminal offence in Australia, the government announced on Tuesday, as the nation’s largest lenders prepared to be grilled by a parliamentary committee over their practices.
Treasurer Scott Morrison said the tough new rules would “ensure that past egregious conduct by the banks in manipulating benchmarks is prevented in the future”.
Criminal penalties, including jail time, could be imposed for market manipulation in setting bank bill swap (BBSW) rates—used to set the price of financial products such as bonds, loans and derivatives—and other key benchmarks such as equity indexes and Treasury Bond Futures settlement prices.
The BBSW—the rate at which banks lend to each other—was in the past set by 14 banks each business day, who quoted the interest rate they were paying and receiving.
But that left it open to manipulation if the wrong information was given, with tweaking the rate potentially allowing traders to make millions in profits.
Australia’s corporate regulator, like its counterparts in the United States and Britain, has been probing multinational banks over benchmark interest rate-rigging.
Three of the country’s big four lenders—Westpac, ANZ, and National Australia Bank—have been charged over allegations they manipulated the interbank lending rate between 2010 and 2012.
None of them has admitted any wrongdoing.
“This package will ensure our regulatory regime is as modern and secure as any comparable regime found in equivalent foreign jurisdictions, such as the United Kingdom and the European Union,” Morrison said of the new rules, which will come into effect in January 2018.
Criminal acts will include making false or misleading statements or engaging in dishonest conduct in relation to determining a bank bill swap rate or other financial benchmark.
‘Permanent cultural change’
The new regulations came as Commonwealth Bank chief executive Ian Narev prepared Tuesday to appear before a parliamentary committee for a new annual grilling of the country’s big banks designed to make them more transparent.
The heads of Westpac, ANZ and NAB will answer questions by the House of Representatives economics committee later this week.
The “big four” lenders — among the developed world’s most profitable — have been under scrutiny in recent years amid allegations of dodgy financial advice, life insurance and mortgage fraud.
There has also been concern over why they do not always fully pass on to customers the benefits of interest rate cuts by the Reserve Bank of Australia, a key tool wielded by the central bank to boost growth amid global economic turbulence and uneven domestic expansion.
The issue is particularly sensitive in Australia, where the big lenders hold the majority of housing loans and owning a home is viewed as a birthright.
Prime Minister Malcolm Turnbull called the hearings in a bid to counter demands by the Labor opposition for a more powerful and wide-ranging national inquiry into the finance industry, spurred by the rate-rigging allegations.
“What we’re setting in place here is ongoing, permanent cultural change and change that will make the banks ensure that they are accountable,” Turnbull said in announcing the hearings in August.
The last major probe into the sector was completed in 2014 and called on domestic banks to hold more capital to address weaknesses that emerged during the 2007-2008 financial crisis.