Westpac conduct 'unconscionable' but didn't rig rate, court finds
The Federal Court has dismissed the corporate watchdog's case that Westpac manipulated one of the country's most important interest rates, but found the bank engaged in unconscionable conduct.
Justice Jonathan Beach on Thursday said there were four occasions where Westpac traders had acted with the dominant purpose of influencing the bank bill swap rate, which amounted to unconscionable conduct, but he was not convinced they had successfully manipulated the price in these instances.
He also ruled the bank had breached its licence conditions under the Corporations Act because it had inadequate procedures and training.
The Australian Securities and Investments Commission (ASIC) had accused Westpac of unconscionable conduct and market manipulation over its behaviour in setting the bank bill swap rate (BBSW), one of the most important interest rate benchmarks in financial markets. BBSW is used by banks to set the interest rates paid on business and commercial loans, and ASIC has previously said it is of "systemic" importance.
In its claim against the bank launched in 2016, ASIC argued Westpac traded in a manner intended to create an "artificial price" for bank bills on 16 occasions between 2010 and 2012.
In his judgement, Justice Beach wrote he had "rejected ASIC's case" as it related to market manipulation, because he was not convinced the bank's trading had influenced the price of BBSW-linked products such as bank bill futures or interest rate swaps.
"For the moment, it is sufficient to say that I am not satisfied that the holding of the relevant dominant purpose on the said four occasions, together with the other evidence, establishes the effect or likely effect of creating or maintaining an artificial price for or under such derivative instruments," the judgement said.
He also said he was "not prepared to infer from the isolated instances" of the four occasions that there was a widespread pattern of such behaviour.
Despite dismissing the market manipulation case against Westpac, Justice Beach said Westpac had engaged in unconscionable conduct on four occasions, and the behaviour could have had a "real" impact on counter-parties in the market.
"Its conduct had a real and not remote chance of prejudicing such counter-parties. But it is not necessary to prove that any person with whom it had a commercial relationship actually suffered harm," Justice Beach.
An ASIC spokesman said: "This is a very significant and positive outcome for the integrity of Australia's financial markets."
Westpac is the only big four bank that challenged ASIC's rate-rigging allegations in court, a decision that has been publicly defended by chief executive Brian Hartzer and his chairman, Lindsay Maxsted.
The lender, which is expected to make a public statement later today, is confident it will face a lower fine over the unconscionable conduct finding than what would have paid in any settlement with ASIC.
faced in a settlement.
In the trial against Westpac, ASIC presented often colourful transcripts of traders' conversations.
Justice Beach said ASIC bore the burden of proof, and it many cases had put forward conversations between traders as proof of "manipulative purpose". However, he said many of these conversations were open to interpretation, particularly when understood in context, and where there was uncertainty over what was meant in an exchange between traders, he had "resolved the uncertainty in Westpac's favour".
ASIC also took legal action against rivals ANZ Bank, National Australia Bank and Commonwealth Bank over their conduct in the BBSW market.
But Westpac was the only of the big four banks that fought the allegations in court, with a high-profile court case last year in Melbourne, which included appearances from trading staff whose conversations were recorded by ASIC and presented as evidence.
ANZ and NAB each settled with ASIC for $50 million last year, while CBA this month said it had reached an in-principle settlement with the watchdog, in which it would hand over $25 million. As part of their settlements, ANZ, CBA and NAB admitted to attempted unconscionable conduct.
More to come