The Federal Government has announced a package of legislative changes aimed at preventing the manipulation of financial benchmarks.
In an attempt to better regulate the Bank Bill Swap Rate (BBSW), a key financial benchmark that serves as the reference rate for the pricing of a range of financial products, Treasurer Scott Morrison yesterday announced that manipulating any financial benchmark or financial product used to determine a financial benchmark will now be considered a criminal offence, while administrators of significant benchmarks will be required hold a new ‘benchmark administration’ licence issued by the Austrlain Securities & Investment Commission (ASIC).
ASIC has also been given the power to develop enforceable rules for the administrators of significant benchmarks and for entities that make submissions to such benchmarks, including the power to compel submissions to benchmarks in the case that other calculation mechanisms fail.
The changes stem from advice provided to the government by the Council of Financial Regulators (CFR) and Morrison said they “will ensure that past egregious conduct by the banks in manipulating benchmarks is prevented in the future.”
“This package will ensure our regulatory regime is as modern and secure as any comparable regime found in equivalent foreign jurisdictions, such as the United Kingdom and the European Union,” Morrison said.
“These measured changes will build on the steps that the Turnbull Government is already taking to strengthen our banking and financial system including strengthening ASIC’s resources and capabilities and the establishment of a regular Parliamentary Inquiry into Australia’s banking and financial system,” he said.
While Morrison and the government believe the changes will improve the regulation of the financial benchmarks, not all are convinced.
Industry commentator and Digital Finance Analytics principal Martin North
suggested the changes may be a political ploy to ease the scrutiny the major banks are currently facing.
“Is the timing convenient, ahead of the banks appearance before the economic committee this week, to defuse the BBSW issue?” North said.
“The banks still maintain control of the BBSW. These changes are really pretty weak,” he said.
ASIC is currently pursuing three of the four major Australian banks –NAB
and Westpac - over unconscionable conduct and market manipulation in setting the BBSW from 2010 to 2012.