Scott Morrison wields big stick to protect finance benchmarks

The government will make it a criminal offence for banks or investors to try to manipulate financial benchmarks.

Treasurer Scott Morrison says the new regulation will ‘better protect Australians from the possible abuse and manipulation of financial benchmarks by banks’.

The Turnbull government will make it a criminal offence for banks or major investors to try to manipulate financial benchmarks such as the S&P/ASX 200, the consumer price index or the ­Reserve Bank’s cash rate.

Tough new regulation was ­announced overnight by Scott Morrison ahead of this week’s grilling of the chief executives of the four major banks by the House of Representatives economics committee which starts with Common­wealth Bank chief Ian Narev today.

Three of the big banks — Westpac, the ANZ and the ­National Australia Bank — have been charged by the Australian Securities & Investments Commission with unconscionable conduct and market manipulation over claims they attempted to exact big profits from shifting the bank-bill rate, which is the most important daily interest rate in the Australian financial system.

The three banks have strongly denied the charge while ASIC’s case has been made more difficult because there is no offence covering financial benchmarks, only ­financial products.

Mr Morrison said the new regulation would “better protect Australians from the possible abuse and manipulation of financial benchmarks by banks”.

It would “ensure that past egregious conduct by the banks in manipulating benchmarks is ­prevented in future”, he said.

Bill Shorten has used the claims of rate rigging to advance his call for a banking royal commission. The Labor leader yesterday dismissed the parliamentary inquiry, saying it would never be able to unravel the “pathology” of the banking sector.

“All too often when you see the scandals and failures, you see bankers chasing big profits over providing quality service to ­customers,” he said.

Mr Shorten said the remuneration of bank executives, with ­bonuses based on profits, meant that customer service suffered.

However Malcolm Turnbull said the hearings, to be held annually, would change bank behaviour. “It is very important to have a change to the culture of accountability so that appearance before the people’s representatives, in the people’s house in Canberra, is part of the banking calendar,” the Prime Minister said.

The Treasurer’s new regulation reflects concern that key measures, such as the S&P/ASX 200 or the bank-bill rate, are used as a reference point by all market participants and manipulation which threatened their integrity would have the potential to cause widespread financial instability.

Mr Morrison is acting on recommendations from the Council of Financial Regulators which is led by the Reserve Bank. It urges that there should be a list of benchmarks, that would also include the Australian Bureau of Statistics’ consumer price index, the Reserve Bank’s cash rate and the ASX’s bond futures price.

Organisations running significant benchmarks would have to be licensed by ASIC which would have the power to write rules governing their operation.

There are dozens of less significant industry indices, covering prices of housing, commercial property, petrol and many more, mostly operated by private sector firms. It will be a criminal offence to artificially manipulate these.

The new regulation would apply to benchmarks followed in Australia, regardless of where the benchmark is based. This is to ensure people operating benchmarks do not simply shift offshore to avoid the regulatory impact.