CBA enters fourth enforceable undertaking in four months

CBA has been hit with its fourth enforceable undertaking in four months, as it forks out $25m to settle rate-rigging case.

A Commonwealth Bank of Australia branch in Sydney. Picture: AAP

Commonwealth Bank has been slapped with its fourth enforceable undertaking this year, after the Federal Court approved a $25 million payment to settle allegations the bank rigged the bank bill swap rate benchmark.

The latest enforceable undertaking will be aimed at beefing up controls over its fixed interest trading desk, with an independent expert to assist in overhauling the company’s policies and systems. CBA will have to give the corporate watchdog its plans to overhaul its training policies and procedures within three months, which will then be assessed over another three month period by the independent expert.

CBA also agreed to admit to attempted unconscionable conduct over its attempts to rig the swap rate, a crucial benchmark used to set interest rates across the economy. The Australian Securities & Investments Commission has already won $125m in remediation payments out of CBA, ANZ and National Australia Bank over the lenders’ trading with the BBSW rate, and the Federal Court is soon to rule on penalties for Westpac, which was found on four separate occasions to have “engaged in manipulative trading”. Westpac was the only major local bank to not to settle the allegations.

But for CBA, the enforceable undertaking amounts to the fourth such agreement during 2018 slapped on the nation’s largest bank. Last week, CBA agreed to an EU after ASIC found it was shunting customers into its own superannuation products under the impression they were receiving personal financial advice, which it was not permitted to give.

That came on top of an EU from the Australian Prudential Regulation Authority following a damning prudential review of CBA’s culture and governance in the wake of the money laundering scandal. The APRA enforced EU came with a capital penalty of $1 billion, which the bank must lock away in regulatory reserves.

Another EU from April this year relates to 31,500 customers of CBA subsidiaries Commonwealth Bank Financial Planning and BW Financial Advice who paid for advice they did not receive.

CBA’s $25m payment for the BBSW action is made of pecuniary penalties totalling $5 million for attempting to engage in unconscionable conduct, $15m in community benefits and $5m to ASIC’s legal and investigation costs. Federal Court Justice Beach said the penalty “should be an adequate denouncement of and deterrence against the unacceptable trading behaviour of individuals within CBA that ought to have known better and a bank that ought to have better supervised its personnel”.

CBA’s settlement is smaller than the $50m that ANZ and NAB each ponied up in November to settle their BBSW cases because ASIC accused it of rigging the rate only six times, as against the regulator’s 44 counts against ANZ and 50 against NAB.

The corporate watchdog last week attempted to force Westpac to hand over any private messages sent between the bank’s most senior executives and its star traders, including Col Roden and Sophie Johnston, in the period after the Federal Court found the lender engaged in unconscionable conduct by trying to rig the benchmark BBSW rate. While the court later this year is to decide on a penalty, Westpac and ASIC are able to submit information to assist Justice Beach’s decisions. The next hearing is scheduled for mid-October.

The CBA settlement represented a backflip by Australia’s biggest bank, which had stood its ground for several months after being served the action in the court.

However, new CBA chief executive Matt Comyn’s twin desires to clean out issues inherited from predecessor Ian Narev and improve relationships with ASIC following the scathing APRA report that found its dealings with regulators were “slow, legalistic and reactive” and “at times dismissive” are believed to have caused the shift.