ASIC files rate rigging suit against CBA

The corporate regulator has launched legal action against Commonwealth Bank over rate rigging allegations.

Incoming Commonwealth Bank chief Matt Comyn at CBA headquarters in Sydney yesterday. (James Croucher)

Commonwealth Bank has been sued in the Federal Court over claims it rigged a key interest rate, making it the fourth of the major banks to be served with legal action over allegations of bank bill swap rate manipulation.

The Australian Securities & Investments Commission today launched legal proceedings in the Federal Court of Melbourne against the nation’s largest bank, where it is alleging unconscionable conduct and market manipulation of the bank bill swap rate between January and October 2012.

ASIC had been in discussions with CBA (CBA) over its alleged behaviour, but was forced to launch a legal suit after nearing the statute of limitations for evidence, which prevents legal actions being brought for conduct more than six years old.

The legal filing makes CBA the fourth of the major banks to be targeted with legal action over alleged rate rigging. ASIC has already claimed five scalps over allegations banks were rigging the bank bill swap rate -- a key interest rate benchmark in the financial system.

ANZ Banking Group and National Australia Bank, which were facing the prospect of a lengthy trial, late last year pulled out moments before the case was due to be heard, each striking a $50 million settlement with the regulator and admitting to a number of attempted misconduct claims.

Westpac’s decision to break with the rest of the banking sector and defend itself in court against the corporate watchdog’s explosive rate rigging suit now appears increasingly risky, with transcripts released before Christmas continuing to foment reputational damage at the country’s second-largest bank.

ASIC has claimed CBA staff on three specific occasions “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”.

ASIC alleges it was unconscionable for CBA to trade in this way, and to enter into products priced off the BBSW without disclosing its trading practices to its customers and counterparties. ASIC has claimed CBA’s actions created an artificial price for some of these products.

The legal action comes just a day after CBA announced the appointment of “insider” candidate Matt Comyn as new chief executive. CBA chairman Catherine Livingstone said the former retail bank boss was the best candidate to drive cultural change at the scandal-plagued bank. Outgoing chief Ian Narev had his exit announced just days after the anti-money laundering regulator Austrac alleged the bank had breached the law more than 50,000 times.

In 2014, Royal Bank of Scotland paid $1.6 million to clear up allegations from ASIC. That followed Swiss giant UBS and France’s BNP Paribas both paying $1m over the bank bill swap rate scandal.

The scandal has numerous similarities to the Libor rigging scandal which played out in British and US courts, which resulted in nearly $US6 billion worth of fines for six major global banks, including both Royal Bank of Scotland and UBS.