Bank penalty ‘risible’

Judge delivers scathing verdict on $1.8m Westpac fine

A Federal Court judge has slammed a “risible” $1.8m penalty against Westpac for an unlawful multibillion-dollar transaction, saying the public would be shocked by the insignificance of the penalty.

Judge Michael Lee, in handing down orders imposing the maximum penalty allowed under law to Westpac, said banks that engaged in such unconscionable conduct should have to “advertise” their misdeeds on their app so customers would be aware of their behaviour.

ASIC alleged Westpac engaged in unconscionable conduct as part of a $12bn interest rate swap transaction with a consortium of AustralianSuper and a group of IFM entities in 2016.

The transaction, associated with the privatisation of a majority stake in electricity provider Ausgrid by the NSW government, remains the largest interest rate swap transaction executed in one tranche in Australian history.

The regulator alleges the bank withheld key information from the market that it would be executing the transaction. Westpac has admitted to unconscionable conduct and not clearly and fully disclosing its pre-hedging strategy.

Justice Lee said that, while there was nothing he could do about “the manifest and striking disparity” between the penalty and the nature of the conduct, it was a matter of concern.

“The fact that there is a penalty of $1.8m in the circumstances is something which I think would rightly shock the conscience of people,” Justice Lee said. “It’s a risible amount compared to the nature of the conduct and the size of the organisation.”

Under the terms of a settlement approved by the court, Westpac also will pay $8m towards ASIC’s investigation and litigation costs.

Justice Lee foreshadowed further action against Westpac that would require it to advertise its misdeeds to a broader audience beyond what was written in a court judgment. The bank also agreed it would review its systems, controls and policies and procedures.

ASIC alleges that on the morning of October 20, 2016, Westpac knew, or believed, it would be selected to execute the interest rate swap transaction to facilitate the Ausgrid deal. When the market opened at 8.30am, while in possession of the alleged information, Westpac’s traders acquired and disposed of interest rate derivative products in order to pre-position Westpac in anticipation of the execution of the swap transaction. ASIC alleges Westpac’s trading occurred while it was in possession of information that was not generally available to other market participants.

Justice Lee said that by the end of the trading day on October 20, Westpac’s derivative trading desk had made a profit of $20.3m.