Banks lawyer up against "embarrassing" ASIC

The major banks are continuing their lengthy lawsuit against ASIC claiming the regulator doesn't understand the bank bill swap rate



The major banks are preparing themselves for a lengthy legal fight against the Australian Securities and Investments Commission (ASIC) as the regulator and its chairman Greg Medcraft start running out of time and money.
According to the Australian Financial Review, Medcraft’s legal “war chest” of $89 million is almost half empty with ASIC having spent close to $45 million on legal fees in the landmark case.
The banks have allied with some of the country’s top law firms to fight the charges with ANZ hiring Alan Archibald QC and Clayton Utz, Westpac hiring Steven Finsch SC and Allens Linklaters, and National Australia Bank (NAB) hiring Neil Young QC who is being instructed by King & Wood Mallesons.
NAB filed its defence on Tuesday (15 November) and described ASIC’s case as simplistic and “embarrassing”. The bank has also countered ASIC's allegations that there were victims of its rate rigging, reports the Sydney Morning Herald, with NAB instead describing counterparties to these rate transactions as “sophisticated investors and/or commercial enterprises... that were able to enter into financial transactions to avoid, offset, hedge or otherwise manage exposures to the BBSW rate”.

The bank's 108-page defence accuses ASIC of failing to understand how the bank and its traders work. 

“[Where] a participant in the bank bill market decided on a particular day during the relevant period” to sell, buy or retain bank bills, “it was not possible to anticipate...the effect of implementation of that decision (if any) on the volume of prime bank bills...(and) the yield of the bank bills," the defence says.

It is also impossible for the bank to identify or quantify any effects of a transaction on the bank bill market, NAB says. Furthermore, due to the short window in which the benchmark rate was set, traders would be unable to know the final rate while trading.

“There was no necessary correlation between any motivation or purpose on the part of a participant in the Bank Bill Market, in selling, buying or retaining prime bank bills of a particular tenor, to influence either the yield at which prime bank bills are traded or the level at which the BBSW for that tenor was set by AFMA (Australian Financial Markets Association) on that day,” the NAB defence says.

All this legal preparation suggests that the banks may be preparing for a longer battle in an attempt to outlast Medcraft’s term as chairman which expires in November 2016, reports the Australian Financial Review.
While both ASIC and ANZ were close to reaching a settlement earlier this year, the bank refused to admit liability and the settlement was dropped. All three banks have hardened their position since then.
Justice Jonathan Beach of the federal court has set a provisional trial date for the three cases for August next year. However, the banks could delay the trials to negotiate a settlement with Medcraft’s replacement who may take a more pragmatic view.
With an opening for chairman advertised in the Australian Financial Review last week, possible candidates include productivity deputy commissioner Karen Chester, chair of the banking complaints review Professor Ian Ramsay, Corrs Chambers Westgarth partner and former Joe Hockey chief of staff Andrew Lumsden, and current ASIC Commissioner Cathie Armour.
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Federal Government moves to stop BBSW manipulation

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