ASIC ‘falls short’ in Westpac legal sting
A Federal Court judge has rejected ASIC’s bid for an 18-fold increase in Westpac’s maximum penalty for unconscionable conduct while trading in the bank bill swap rate market.
After criticising the Australian Securities & Investments Commission’s approach in Thursday’s penalty hearing, describing its submission as “wholly artificial” and “plainly ridiculous”, judge Jonathan Beach ruled yesterday that Westpac should pay a $3.3 million penalty as opposed to the $58m figure sought by the regulator.
“The solution to this legal problem of identifying the maximum penalty applicable to Westpac’s offending has not been greatly assisted by ASIC’s approach before me, which has had all the irreconcilable atonality of a Schoenberg composition compared with the case that it pleaded and substantiated at trial,” Justice Beach said.
In May, the court found that Westpac had engaged in unconscionable conduct under the ASIC Act through its involvement in setting the bank bill swap rate on three days between 2010 and 2012. The court ruled that the bank traded with the dominant purpose of influencing yields of prime bank bills in a way that was favourable to its rate set exposure.
The more serious charges of market manipulation were thrown out.
Westpac’s maximum penalty for the three transgressions was thought to be $3.3m. However, as foreshadowed in The Australian on Wednesday, ASIC argued each of the 58 bids put into the market by Westpac amounted to a transgression.
The regulator’s bid to supercharge Westpac’s penalty was seen as a response to the criticism it received from the financial services royal commission for pursuing soft regulatory outcomes instead of the deterrence value of large fines imposed by the courts.
Justice Beach said in his ruling yesterday that it was inconsistent with the way ASIC pleaded its case for the regulator to argue every trade on the three relevant dates was a separate transgression.
“The real and not remote chance of influencing the BBSW was never pleaded as being brought about by a single trade, but rather the conduct of trading in the relevant window,” he said.
“Of course, the trading on a particular day may have been made up by a number of transactions, but each transaction was not the contravening conduct but rather the transactions collectively amounted to the trading and therefore the conduct.”
Justice Beach said there was no mention of 58 unconscionable trades in the reasons given for his original judgment, and ASIC never ran with such a case.
However, it was clear that the $3.3m fine was inadequate, even though the penalty regime was described in 2009 as “serious”.
“Perhaps in one sense (the penalties) could be said to have been serious,” Justice Beach said.
“But in the context that I am addressing, they were seriously inadequate then and thereafter.”
ASIC, he said, had to accept the reality of the legislation. It was not permissible to try to “circumvent” such a restriction by recharacterising the conduct required for each contravention to “artificially inflate” the maximum penalty that could be imposed.
Justice Beach said Westpac’s conduct required a penalty that was either close to or at the maximum level. He said the bank’s unconscionable conduct was deliberate and extended across a significant period, presenting Westpac with ample time to identify and eradicate it.
The BBSW also had systemic and institutional importance in Australia’s financial markets, and Westpac engaged in the conduct for potential financial gain both at a bank and employee level, he said.