The Australian Securities and Investment Commission (ASIC) recently settled out of court with ANZ Bank over the alleged rigging of key interest rates.
The landmark case was settled for a reported $50 million, although this has not been confirmed by either party involved.
In a statement, the ANZ bank said:
"ANZ today announced it has reached a confidential in-principle agreement with the Australian Securities and Investments Commission to settle court action relating to the Australian interbank BBSW market.”
The National Australia Bank is also said to be in discussions with ASIC over similar allegations.
Here is what you need to know.
Corporate watchdog ASIC accuses ANZ, NAB and Westpac of rigging a key benchmark rate known as the ‘bank bill swap rate’ or BBSW.
The BBSW is used as a measure when working out the cost of business loans.
NAB and Westpac have not settled, as ASIC are putting pressure on both lenders to admit their actions were wrong.
By doing so, both banks will expose themselves to possible class actions from their clients.
ANZ Bank is said to believe its terms of settlement are drafted in such a way that a class action would not be possible.
The fact ANZ Bank has settled places pressure on its counterparts to follow suit. Especially if ANZ has settled without having to admit liability for wrongdoing.
A report in the Sydney Morning Herald says that Westpac has been the least interested in settling, while NAB has been in active talks with ASIC.
If Westpac is the only bank that doesn’t settle, it will have to contend the highly-publicised case solo.
The allegations by ASIC against the banks are as follows:
ASIC has sought a declaration of unconscionable conduct from the court and financial penalties, as a result of the alleged breaches.
Why does the BBSW matter?
When banks lend to one another, the BBSW is the key rate used to determine interest. This is what makes it one of the most important rates in the Australian economy.
It also provides a benchmark for determining the scope of interest rates on business loans. In short, it’s impact is widely felt by everyday Aussie business owners, and the economy in general.
What does this mean for borrowers?
According to ASIC’s statement, the cost of the out of court settlement will be covered by provisioning from March 31, 2017.
In other words, the penalty may not even impact their financial year results.
What it does do is place uncertainty around the trustworthiness of banking institutions. And this is nothing new.
In 2013 and 2014 two other banks were investigated by ASIC for allegedly rigging the BBSW rate. Big banks overseas have been fined billions of dollars for rigging in similar circumstances.
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