ASIC says reward the good, punish the bad

by AB10 Jul 2015
Australia’s financial institutions should ensure only good conduct by staff is rewarded while also penalising poor conduct according to ASIC.

ASIC yesterday released a report identifying the issues it has with the behaviour of financial institutions in the setting of key benchmark rates.

According to the report, benchmarks, which are reference prices for financial instruments or contracts, or to measure the performance of investment funds, are being manipulated by the sharing of confidential client information and submitting low rates to force down an institutions cost of funding.

This results in the value of positions held by banks increasing, while clients are forced into losses.

According to ASIC, poorly designed incentive schemes foster an environment where manipulation is likely to occur.

“However strong the compliance structures that are put in place, poorly-designed incentives will inevitably increase the risk of non-compliance with legal requirements at the individual level,” the report said.

“It is crucial that firms recognise performance in a way that not only promotes good conduct, but penalises poor conduct as well—by selecting appropriate drivers of pay and bonuses, and triggers for nonmonetary incentives such as development opportunities (e.g. conferences, assignments or promotion).

“Training must also be kept up-to-date and refresher training should be conducted for all staff, including senior staff, to ensure that entrenched practices and cultures that may not be compliant are addressed.”

ASIC commissioner Cathie Armour said it was imperative that consumers could have confidence in the country’s banks and other institutions.

“Financial benchmarks can have flow-on effects to ordinary investors and borrowers. For example, the Bank Bill Swap (BBSW) rate is often used in setting commercial lending rates,” Armour said.

“Given their importance, it is critical to market confidence that financial benchmarks are robust and reliable,” she said.

“Financial institutions must get this right. That is, have the right culture, oversight, and incentives in place to make sure they do not abuse client trust and threaten market confidence.”

ASIC is currently undertaking an investigation into benchmark manipulation that includes the examination of trading data, phone recordings, emails and chat messages.

Voluntary interviews and compulsory examinations of numerous individuals, up to senior management level, from a number of institutions are also being conducted.


  • by Chrys_E 10/07/2015 9:32:04 AM

    I completely agree that (in a lot of cases) incentives and penalties are out. Everyone wants the rewards only. As a high level manager in an advice business I see this all the time and although we do have penalty systems in place as well as rewards all staff feel it is 'unfair' to be penalized. That being said we still do it. Positive enforcement is important however setting an example and ensuring you penalize where required is also important to the culture. Whenever the culture has taken a dive in our business it has always because people have some how flown under the radar and the penalties and rewards were out of balance.

  • by Peter Heinrich 10/07/2015 6:55:36 PM

    If anyone thinks Banks are easy to get loans through they obviously haven't been a broker. I have not personally seen any easing in attitudes or culture from the Banks. All the ducks need to be in a row to get the deal done. This is not always the case for the in-house lenders who seem to have greater scope to 'omit' or 'overlook' things or come up with a slightly cheaper rate than the broker. The lenders often offer incentives such as increased commissions, or waiving fees. This I think is wrong but thankfully most brokers resist when looking for the 'right' product for their client. However the lenders must be getting something out of it otherwise they wouldn't do it. A bit of a worry really.