ASIC plans to target other banks for market manipulation after its ANZ investigation

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The corporate regulator plans to target Australia’s other big banks for manipulating interest rates and is understood to be getting frustrated at their attempts to delay its investigation.

The likely widening of the Australian Securities and Investments Commission’s legal case against ANZ Banking Group for allegedly manipulating the bank bill swap rate to snare other banks comes as the plaintiff law firm Maurice Blackburn said it is investigating ANZ’s conduct to determine whether a class action can be launched on behalf of customers.

Sources said ASIC’s investigation of Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corp is ongoing and the regulator has gathered telephone records and written communications from these banks of a similar nature to material that is being used in its case against ANZ.

ASIC’s desire to put other banks on the hook for rigging the bank bill swap rate, a key interest that determines the pricing of billions of dollars of loans across the economy, comes as legal experts say its case against ANZ will be difficult given the lack of clarity in Australia’s corporate law about what sort of conduct amounts to a breach.

After negotiations between ANZ and ASIC broke down last week because ANZ was not willing to admit liability as part of a settlement, ASIC was forced to launch its case because it was running up against the statute of limitations. This says legal action must be brought within six years of an alleged offence taking place. The start of the period of ANZ’s alleged misconduct is March 9, 2010, six years ago on Wednesday this week.

Other banks less advanced

While sources say ASIC’s investigations into the other banks are less advanced than ANZ, the regulator may be forced to start legal action as offences run up against the statute of limitations.

The Australian Prudential Regulation Authority said on Sunday it could not comment about ASIC’s action against ANZ because it is not able to discuss individual institutions.

ANZ Banking Group is believed to remain in direct communication with the corporate regulator about a possible settlement of its case. Settlement talks between ANZ and ASIC have so far failed because the bank will not agree to the regulator’s demands for an admission of guilt.

ASIC sees this as crucial to making sure banks are held accountable but it is understood ANZ was nervous this could leave it exposed to potential class actions.

ASIC claims ANZ’s behaviour is likely to have caused “financial detriment” to various customers.

Litigation firm Maurice Blackburn confirmed on Sunday that it was investigating a potential action over the matter.

“I can confirm that Maurice Blackburn is looking at this matter, and a class action could be a possibility,” a spokeswoman said.

Legal experts said the corporate watchdog may face an uphill battle in proving market manipulation against ANZ, and the unconscionable conduct claim could also be challenging for the regulator.

However, they added that the stakes were very high for the bank given its financial services licence was also on the line.

Statement of claim allegations

ASIC’s draft statement of claim alleges ANZ engaged in market manipulation, unconscionable conduct and the bank breached conditions of its financial services licence.

Professor of corporate law at Western Sydney University, Michael Adams, said in his 30 years working in the law, cases brought on market manipulation were rarely successful unless there was a guilty plea.

“The evidence required is going to be quite phenomenal, so I think they’re going to have an uphill road on the market manipulation provision,” he said. The case law on unconscionable conduct also suggested this was a “hard road to win” for ASIC, but he said the regulators claims ANZ breached certain licence conditions were “very smart”.

University of Melbourne corporate law expert Ian Ramsay agreed that the market manipulation provisions of the Corporations Act were uncertain. He said it was too early to form a view on the merits of the case, but said “anyone would agree this is a section, like many provisions of the Corporations Act, does have some uncertainty about it”.

The licence provisions were quite technical, Professor Adams said, but ASIC’s track record in enforcing licence conditions was solid, and holding a licence was critical to any bank. “If this succeeds, ANZ Bank’s reputation will be in tatters. It’s not just a technical breach, hence why ANZ will fight it tooth and nail, because their whole professional reputation will be at stake,” Professor Adams said.

James Wheeldon, a corporate lawyer who used to work at ASIC, also highlighted the difficulty of proving market manipulation. To do so, ASIC would need to prove that an “artificial price” had been created by the behaviour of ANZ traders.

“Proving market manipulation, the one thing that you have to prove is, did it have the effect of creating an artificial price in the security? And that’s not at all straight-forward,” he said.

“Obviously ANZ feels like they have got a defence on this. Their financial services licence is at risk theoretically, if they lose this. The reputational costs are massive.”

He said ASIC’s unconscionable conduct claim was less likely to get bogged down in complex technical discussions, but he was not aware of the regulator winning cases on this specific issue.

Proving the bank had engaged in unconscionable conduct would be be “groundbreaking,” he said, but based on the limited information released so far he thought ASIC’s argument sounded like it “had legs”.

This story first appeared in The Australian Financial Review. Read it here or follow The Financial Review on Facebook.

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