NAB penalty shows an overreach by ASIC

If the punishment truly fits the crime, surely the punishment also defines the seriousness of the crime.

If the punishment truly fits the crime, surely the punishment also defines the seriousness of the crime. So what does it tell us that National Australia Bank’s “punishment” for its “rate-rigging” was just “two Rebels”?

NAB was generally projected as agreeing to a $50 million penalty in its settlement with ASIC over the BBSW (bank bill swap rate) case. It was also generally projected as admitting its sins, with ASIC emerging as a tough — and successful — regulator.

In fact only $10m of the $50m was the actual (agreed) penalty. Two much bigger sums of $20m each were NAB paying ASIC’s costs and making a “donation” to a “financial consumer protection fund nominated by ASIC”.

Further, NAB most specifically did not agree that it engaged in “rate-rigging” or indeed that it had “done” anything; only that it had “attempted (my emphasis) to engage in unconscionable conduct”.

To make the obvious point, this means ASIC has also agreed that NAB only, to stress again, attempted to engage in unconscionable conduct; that it therefore did not succeed in conducting itself unconscionably; that it, bluntly, did not engage in unconscionable conduct.

Again, to make the obvious but important point, this means that ASIC has conceded that NAB, at least of the three banks it has been chasing over the BBSW — we haven’t seen the “deal” it agreed with ANZ; we only have ANZ’s brief word that there is one — did not “rig the rate”.

So for all that regulatory huffing and puffing, ASIC has agreed, at least so far as NAB is concerned, that there wasn’t much of a “crime”, and the “punishment” seems to endorse that: just $10m.

Some excited comparisons have been made between the $50m aggregate figure and the $45m Tabcorp agreed to pay earlier this year in its “agreed deal” with Austrac over money-laundering breaches.

To digress, that is of course the “problem” that CBA now faces — which highlights a delicious puzzle. CBA was the only one of the four big banks that was not pursued by ASIC over the BBSW. It was also the only one of the four big banks that stuffed up its Austrac ATM-reporting and is now going to pay a penalty which would probably make it wish it could swap places with NAB.

Tabcorp’s $45m was all penalty. Tabcorp agreed to pay an additional unspecified sum for Austrac’s costs. Tabcorp also “agreed” to admit it had made a “serious contravention” of the money laundering laws, albeit that was not its intent.

So we have an admission of an actual contravention as against an “attempted” one; and “punishments” — $45m versus $10m — seemingly proportional to the two “crimes”.

Even on its own $10m defines and, indeed, announces that NAB’s “crime” was, at worst, trivial. Put in the context both of the tens of billions of dollars of transactions related to the BBSW, to say nothing of the $6000 million-plus NAB profit, the “crime” — as agreed by ASIC — actually doesn’t even reach the status of trivial.

Indeed, that is confirmed by the fact that it is barely “two Rebels’ — barely twice the $4.5m Rebel Wilson was awarded in her defamation case against Bauer Media.

Actor gets $4.5m for having her reputation defamed by a magazine that no sentient person believes; big bank gets fined $10m for actions so dastardly that ASIC poured untold resources into — well, attempting — to nail it.

One is left with only one conclusion: ASIC was acting as a rogue regulator and it overreached, at least so far as NAB was concerned. It was lucky that it made sense for NAB to pay it, essentially trivial, “go-away money”. It was even luckier that the media would “buy” its characterisation of the outcome as a “win”.

On the substance of the issue, it is important to understand two big points. Even if we accept ASIC’s allegations and assertions as absolute facts — and further therefore, that NAB for one, had succeeded in acting unconscionably — the consequent so-called “rate-rigging” had absolutely no impact on the interest rates banks charged on their home loans.

To put that more directly, the banks were not “rigging the rate” so they could charge a higher rate to home loan borrowers. To stress again, on the basis of accepting the ASIC allegations as fact, which not even ASIC, it would appear, believes any longer.

Secondly, there was no evidence, nor even any suggestion, from ASIC, of collusion between two or more banks. This made the BBSW circumstance exactly different to what might seem to have been a similar situation and similar allegations in Britain over LIBOR (London Inter Bank Offered Rate).

There the banks did collude; there bankers from different banks did agree to make LIBOR appear higher — or lower — than it really was, either to charge higher rates to borrowers or to reduce their own borrowing rates in the market.

Here the banks were doing pretty close to the exact opposite: one bank aggressively buying or selling against everyone else. And whatever they were, well, attempting, to do, it had to be done against a willing and knowledgeable seller or buyer on the other side.

We have yet to see the detail of the ANZ deal with ASIC, even though it was announced first. A similar aggregate settlement figure has been nominated, but we will need to see how it breaks up, and so how many “Rebels” ANZ will have agreed as its penalty.

Westpac alone of the three has of course refused to pay ASIC’s “go away money” and opted to have both its actions and their legal consequences determined in court.

The decision will be very interesting; and if Westpac loses, how many “Rebels” it will be pinged.

An earlier version incorrectly said the Wilson defamation case was against Fairfax Media. The case was against Bauer Media.