Legal expert warns ASIC may be ‘outgunned’ on ANZ investigation over bond trading

The corporate regulator will be ‘outgunned’ on its high-stakes investigation into ANZ’s bond trading scandal, a legal expert has warned.

ANZ CEO Shayne Elliott and ASIC chair Joe Longo

A leading critic of the corporate regulator has warned its probe into ANZ over allegations the bank manipulated the government bond rate ahead of a $14bn placement risks failure due to the forces arrayed against it.

University of Wollongong associate professor of law Andy Schmulow says Australia’s banks have a far greater capacity to fight court action than the regulators.

The academic and regulatory expert says ANZ will also look at the Australian Securities and Investments Commission’s track record over past and current attempts to take big banks to task.

Dr Schmulow said ASIC had failed in many past attempts to take action against other big banks over regulatory breaches, including alleged incidents of rate rigging.

“They’re going to lose this case against ANZ,” he said.

“They’re going to lose them for the same reason they lost the rate fixing case against the other banks.”

ASIC was found to have failed to prove Westpac rigged the Bank Bill Swap Rate (BBSW) in a 2018 Judgement, in what proved a Pyrrhic victory for the regulator.

Justice Jonathan Beach smacked down the regulators case, finding although Westpac traders attempted to influence the BBSW in four incidents the bank actually failed to do so.

However, ASIC claimed a win from the case, with the court making four lesser findings of unconscionable conduct, more than two years after the regulator first lodged it’s case.

But Justice Beach’s Judgement, which saw him impose a $3.3m penalty and note he would have slammed the bank with harsher fines, may signal a more hostile reception if ASIC secures a win against ANZ in its latest case.

The Westpac case came as the fourth rate rigging case launched by ASIC around 2016, with CBA, NAB, and ANZ all agreeing to settlements with the regulator and handing over $125m between them.

The Australian Securities and Investments Commission chair Joe Longo. Picture John Feder/The Australian.

But the settlements also showed ANZ sought to avoid a more dramatic public dissection of the culture of its markets team and an inquisition into the leadership of now-CEO Shayne Elliott who previously ran the banks Institutional division.

“What’s going on at ANZ bank is a classic example of bad corporate governance,“ Dr Schmulow said.

“When you have that kind of culture in an organisation that says you’ve got outright toxic masculinity in your trading desk and you have cowboys, who think they’re masters of the universe, if you have the right corporate culture someone should turn around and say put a stop to it.”

Dr Schmulow said the ANZ scandal was also emblematic of conduct issues in the market which ASIC failed to clean up after the Global Financial Crisis.

He said these kinds of scandals and “consumer abuse” issues were also systemic risks for the banking sector.

“What we learned after the GFC was consumer abuse, if perpetrated at a sufficient scale for a given time, can lead to a financial crisis,” he said.

“We’ve also got a culture in ASIC which is not aggressive.”

However ASIC chair Joe Longo has signalled the regulator will take a robust approach to it’s current investigations and likely case against ANZ, warning it’s probe is expected to run well into 2025 before and court filings materialise.

But Dr Schmulow says ASIC should look to the response of several of the banks in the wake of the 2018 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

“Wetspac has made it clear to ASIC, and it has come out at the Royal Commission, that Westpac has a bigger litigation budget than ASIC does, “ he said.

“Westpac’s response is: We fight everything as far as far as the High Court.”

Dr Schmulow pointed to the response by the banks, including ANZ, to a recent case run by the Australian Competition and Consumer Commission which took aim at a group of bankers over their allegedly cartel-like response to market overhang in ANZ shares in 2015.

The ACCC lost its case, which progressively saw bankers winnowed out of the court claims as the Commonwealth Department of Public Protections pulled it through NSW courts.

ASIC won its case against ANZ, arguing the bank failed to disclose the overhang to the market, but ANZ has appealed the Judgement.

Dr Schmulow noted the then-ACCC commissioner Sarah Court, who led the charge on the regulator’s case, is now deputy chair of ASIC and key to its enforcement approach.

“They’ve got the same person in charge which is Sarah Court,” he said.