ASIC lashes Macquarie over ‘recurrent’ failures to stop suspicious trading, adds new license conditions

The corporate regulator has hit out at the millionaire factory’s failure to stop suspicious trading, and slapped it with a remediation plan to help lift its game.

Macquarie CEO Shemara Wikramanayake. Picture: Supplied

The corporate regulator has put trading desks on notice that it intends to police energy market manipulation after taking a swipe at financial giant Macquarie Group.

The Australian Securities & Investments Commission warned on Wednesday Macquarie had repeatedly shown weak and ineffective compliance and control culture, and slapped the investment bank with a remediation plan.

ASIC said that despite repeated warnings to management over its compliance failures, the bank failed to stop a string of suspicious trades aimed at allegedly manipulating the electricity market.

Underscoring its critique, ASIC said Macquarie had unclear roles and responsibilities, poor change management and an incomplete understanding of process and controls. It imposed new license conditions.

ASIC commissioner Simone Constant said the regulator had grown tired of Macquarie’s inaction.

Ms Constant said ASIC was focused on the potential for manipulation of energy futures markets, and market integrity and energy costs were a priority for the regulator.

ASIC has already taken action against other commodities traders, including issuing court action against Chinese financial giant COFCO over allegations its traders sought to rig the wheat market.

Ms Constant said it was disappointing Macquarie had failed to stop at least 11 suspicious orders being placed after the bank had already been put on watch by the regulator.

“ASIC’s concerns have a depth and a breadth of concern that means we thought this outcome was necessary,” she said.

The commissioner said Macquarie had not learned its lesson despite ASIC previously referring failures in Macquarie’s trading operations to the Markets Disciplinary Panel, which imposed a $5m fine, the largest allowed under its auspices.

“The additional licence conditions are a significant administrative action to ensure Macquarie comprehensively addresses ASIC’s concerns. It cannot be a piecemeal or Band-Aid fix,” Ms Constant said.

Under the new conditions imposed on Wednesday, Macquarie must identify the root cause of the failures and appoint an independent expert to review a remediation plan aimed at addressing them.

The expert must also assess Macquarie’s remediation efforts to “prevent, detect and respond to similar issues” occurring in the future.

Macquarie must report back to ASIC by June 30, and commit to a three-year remediation period.

If Macquarie fails to satisfy ASIC, it risks losing its license.

ASIC Commissioner Simone Constant speaks during a panel discussion at the ASIC annual conference. John Feder/The Australian.

Ms Constant described “recurrent” failures at Macquarie, observing “ineffective supervision and weak compliance and control management”.

“Macquarie must take responsibility and put in place appropriate action to remediate the repeated failures and underlying governance and supervisory failures,” she said.

Ms Constant said ASIC had raised its concerns with the bank’s leadership, but refused to say whether the regulator had taken the matter up with CEO Shemara Wikramanayake.

“We have expressed to the various levels of leadership and governance the degree of our concern,” she said.

Ms Constant said Macquarie had co-operated with ASIC and consented to the new license conditions, and underlined the misreporting of transactions undermined market integrity.

She said this “hinders ASIC’s ability to monitor potential risks in Australia’s financial system”.

“These licence conditions are necessary to give ASIC confidence the remediation will be effective and drive sustainable change,” she said.

In a statement, Macquarie noted the bank took its role as a licensed entity “extremely seriously”.

“In addition to working constructively with ASIC on these remediation activities, [Macquarie Bank] continues to invest in a broader range of existing programs to strengthen its systems, controls and supervisory arrangements,” it said.

Macquarie will report its full year results on Friday.

Originally published as ASIC lashes Macquarie over ‘recurrent’ failures to stop suspicious trading, adds new license conditions