ASIC lines up Westpac whack following Hayne’s call to start playing hardball with banks

ASIC is set to seek higher-than-expected fines at tomorrow’s penalty hearing over Westpac’s dodgy BBSW trades.

A Westpac Bank branch in Sydney. Picture: AAP

New ASIC chairman James Shipton has slipped on the hobnailed boots ahead of tomorrow’s Federal Court penalty hearing over Westpac’s unconscionable trading in the bank bill swap rate market.

It’s understood that the watchdog, instead of backing in the maximum penalty of $3.3 million for Westpac’s four transgressions, will pitch judge Jonathan Beach for a much higher figure based on the number of dodgy trades.

Royal commissioner Ken Hayne’s interim report amounted to an open, 1000-page license for ASIC to play hardball against the major banks.

Evidently, the regulator has got the message loud and clear.

If the watchdog succeeds tomorrow, the penalty imposed by Justice Beach will start to resemble the commercial settlements negotiated by each of Westpac’s three rivals in their own BBSW cases.

ANZ Bank, National Australia Bank and Commonwealth Bank settled similar matters for a combined total of $125m.

Keen observers will recall that Justice Beach’s decision last May in the Westpac case was spun by both sides as a magnificent victory.

ASIC felt vindicated because Westpac, on four of the 16 occasions under examination, was found to have engaged in unconscionable conduct under the ASIC Act through its involvement in setting the BBSW.

The court ruled that the bank traded with the dominant purpose of influencing yields of prime bank bills in a way that was favourable to its rate set exposure.

It also determined that Westpac had inadequate procedures and training in breach of its obligations as a financial services licensee.

Justice Beach said: “Westpac’s conduct was against commercial conscience as informed by the normative standards and their implicit values enshrined in the text, context and purpose of the ASIC Act specifically and the Corporations Act generally.”

Despite the damning judgment, Westpac popped some bubbly, as well, because the more serious market manipulation charges were thrown out.

Publicly, its response was subdued, noting the decision and the fact that it followed a “complex investigation and court proceeding in relation to BBSW trading over a two-year period beginning in 2010 and ending in 2012”.

In an olive branch to ASIC, the bank said it was committed to working with regulators in a constructive manner, even when there was a genuine difference of opinion.

“When that occurs our aim is to resolve the difference in an open, transparent and respectful way,” the bank said in a statement.

The statement read like a missive from the past, when there was a measure of goodwill between the regulator and the regulated.

Hayne was scornful of such an approach in his interim report.

“Much more often than not, when misconduct was revealed, little happened beyond apology from the entity, a drawn out remediation program and protracted negotiation with ASIC of a media release, an infringement notice, or an enforceable undertaking that acknowledged no more than that ASIC had reasonable concerns about the entity’s conduct,” he said.

“Infringement notices imposed penalties that were immaterial for the large banks.

“Enforceable undertakings might require a ‘community benefit payment’, but the amount was far less than the penalty that ASIC could properly have asked a court to impose.”

True, ASIC took all four major banks to court over their BBSW conduct, and extracted fines that were significant in an Australian context while falling far short of those imposed in other jurisdictions.

The fact that Westpac liked faced a trifling fine was no fault of ASIC; it reflected the hopelessly inadequate penalty regime which is now being addressed.

However, the fact that ASIC is searching for another way to extract some blood from Westpac shows that the watchdog is baring its fangs.

In Canberra, and in the court of public opinion, it has nothing to lose.

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