ASIC ‘falls short’ in West­pac le­gal sting

The Weekend Australian - - BUSINESS - RICHARD GLUYAS

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.

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