CBA may have hoped the announcement of a new CEO might have been the start of a quieter time for the scandal-hit bank, but Australia's financial watchdog is taking legal action over rate manipulation.

Scandal-hit Commonwealth Bank of Australia faces fresh woes, with Australia’s national financial regulator saying it has started legal proceedings against the bank for “unconscionable conduct” and rate rigging, adding to actions authorities have taken against other banks in the country. The news broke shortly after CBA announced a new chief executive had been appointed.

The Australian Securities and Investments Commission said it has begun legal action in the Federal Court in Melbourne against the bank, relating to the lender’s involvement in setting the bank bill swap reference rate (BBSW) between 31 January 2012 and October 2012.

The BBSW is the primary interest rate benchmark used in Australian financial markets and was administered by the Australian Financial Markets Association during the relevant period. On 27 September 2013, AFMA changed the method by which the BBSW is calculated. The conduct covered by the legal case took place before the new approach was created.

“During the relevant period CBA had a large number of products which were priced or valued off BBSW. ASIC alleges that on three specific occasions CBA traded with the intention of affecting the level at which BBSW was set so as to maximise its profits or minimise its losses to the detriment of those holding opposite positions to CBA's,” ASIC said. 

“ASIC alleges it was unconscionable for CBA to trade in this way, and also to enter into products priced off the BBSW without disclosing its trading practices to its customers and counterparties. ASIC also alleges that CBA's trading created an artificial price and a false appearance with respect to the market for some of these products,” it said.

ASIC said it seeks statements from CBA that it broke various regulations; the watchdog said it also wants financial penalties imposed on the bank and for the lender to put a compliance programme in place.

"Commonwealth Bank has fully co-operated with ASIC’s investigation over the last two years. Commonwealth Bank disputes the allegations made by ASIC. As this matter is before the courts, it is not appropriate to comment further at this time," CBA said in an emailed statement to this publication.

The case is one of a number of regulatory actions against banks for rigging market benchmarks since the financial markets crisis of 2008. Interbank interest rate benchmarks such as LIBOR, for example, had been fiddled by banks, prompting an overhaul of the system. Banks have hired compliance staff and in some cases, seen high-level executives depart. One of the first cases internationally involved UK-listed lender Barclays. In 2012 Barclays’ high-profile chief executive, Bob Diamond, resigned amid the LIBOR (London Interbank Offered Rate) saga.

New boss
ASIC’s announcement happened a day after CBA announced that Matt Comyn, 42, has been named the new chief executive, effective 9 April 2018, replacing Ian Narev, who announced in August that he would retire before the end of this financial year, after more than six years in the role. Media reports billed Comyn as something of an outsider, although he has had a 20-year career at CBA includes experience across divisions including business, institutional, retail and wealth management.

Narev’s announcement last summer that he was stepping down came amid claims that CBA had tolerated lax controls relating to money laundering and terrorism finance. Matters led to a sharp fall in CBA’s shares, prompting investor anger and legal action. CBA has admitted a number of failures although it has contested other ones. (See article here.) This news service reported in September, meanwhile, that the chief executive of its wealth management unit, Annabel Spring, was leaving in December. According to the statement at the time, Spring “has decided to leave” following the bank's announcement that it will sell off its Australian and New Zealand life insurance business to Asia-focused insurer AIA Group for A$3.8 billion ($3.1 billion), the bank said.

Other cases
Explaining the background to the latest case, ASIC said that in the case of other lenders, it started legal action against the Australia and New Zealand Banking Group on 4 March 2016 and versus National Australia Bank on 7 June 2016. In November last year, the Federal Court declared that each of ANZ and NAB had attempted to engage in unconscionable conduct in attempting to seek to change where the BBSW set on certain dates and that each bank failed to do all things necessary to ensure that they provided financial services honestly and fairly. Penalties of A$10 million ($8.05 million) each were imposed on the banks. 

In April 2016, ASIC also started legal proceedings against the Westpac Banking Corporation. That case awaits judgment.

ASIC has previously accepted enforceable undertakings relating to BBSW from UBS, BNP Paribas and Royal Bank of Scotland. The institutions also made voluntary contributions totaling A$3.6 million to fund independent financial literacy projects in Australia.