The Turnbull Government is strengthening financial regulation to better protect Australians from the possible abuse and manipulation of financial benchmarks by banks.
The strengthened rules regulating the Bank Bill Swap Rate (BBSW), a key financial benchmark that serves as the reference rate for the pricing of a range of financial products, were recommended by the Council of Financial Regulators (CFR) and will ensure that past egregious conduct by the banks in manipulating benchmarks is prevented in the future.
The Australian Securities and Investments Commission (ASIC) is already pursuing three of the four major Australian banks over unconscionable conduct and market manipulation in setting the BBSW from 2010 to 2012.
This package will ensure our regulatory regime is as modern and secure as any comparable regime found in equivalent foreign jurisdictions, such as the United Kingdom and the European Union.
Following my request in November 2015, the CFR consulted and provided advice to the Government on options to reform the regulation of financial benchmarks.
The CFR’s advice, which the Government has released today, broadly recommended that:
- Administrators of significant (that is, systemically important) benchmarks be required to hold a new ‘benchmark administration’ licence issued by ASIC unless granted an exemption;
- ASIC be empowered to develop enforceable rules for the administrators of significant benchmarks and for entities that make submissions to such benchmarks (including the power to compel submissions to benchmarks in the case that other calculation mechanisms fail); and
- The manipulation of any financial benchmark (significant or non-significant) or financial product used to determine a financial benchmark used in Australia (such as Negotiable Certificates of Deposit), be made a specific criminal and civil offence. The Government has accepted the CFR’s recommendations and will work to implement these critical reforms over the next 18 months.
The Turnbull Government is absolutely committed to transparent and well-functioning markets, which are fundamental to a vibrant 21st century economy.
These measured changes will build on the steps that the Turnbull Government is already taking to strengthen our banking and financial system including strengthening ASIC’s resources and capabilities and the establishment of a regular Parliamentary Inquiry into Australia’s banking and financial system.
The CFR’s advice to the Government is attached.