This morning (Sydney time) the Australian Securities & Investments Commission (ASIC) published a report on financial benchmarks (Report 440) (attached).
In it, ASIC provides its view on the importance of benchmarks, identifies which Australian and international benchmarks it considers systemically important, summarises the various different regulatory responses and reforms (including its own) that have taken place since recent concerns about benchmarks were raised, and indicates what existing and forthcoming recommendations and codes of conduct it encourages market participants to adopt.
6 key points
1. ASIC names 5 Australian and 3 overseas benchmarks as examples of systemically important benchmarks (see paras 3-4 and 30-31)
They are the: (i) BBSW; (ii) interbank overnight cash rate; (iii) S&P/ASX 200 equity index; (iv) CGS yields survey; (v) CPI official rate; (vi) overseas interest rate benchmarks such as LIBOR, Euribor and TIBOR; (vii) WM/Reuters 4pm London fix; and (viii) 1.15pm ECB fix.
2. ASIC’s investigations are on-going (see paras 6 and 45-57)
ASIC states that its investigations (including into key interest rate and FX benchmarks) will take time to complete. It is looking at conduct both in Australia and overseas, including the types of conduct identified overseas (such as conduct designed to manipulate a benchmark rate up or down (by submission or trading), triggering client stop-loss orders and inappropriate disclosure of confidential client information). In doing so, ASIC is co-ordinating with domestic and international regulators, examining documents and conducting compulsory interviews of individuals. ASIC confirmed it will also consider the compliance/control functions of financial institutions.
3. Continued emphasis on pro-active self governance (see paras 15 and 135)
ASIC believes that pursuant to their general licensing obligations, AFSL holders should thoroughly review their compliance/control functions in relation to benchmark related concerns.
4. Dealers urged to proactively review past conduct (see paras 15 and 148-149)
ASIC urges dealers, specifically those in the fixed income and FX markets, to review all available historical records, including voice recordings and chatroom sessions, both in Australia and overseas, to identify any misconduct.
5. The importance of industry standards and codes of conduct such as the IOSCO principles (see paras 10 and 128-132)
ASIC reiterates its expectation that certain industry codes of conduct (for example, the Global preamble: codes of best market practice and shared global principles released on 30 March 2015) and recommendations (such as those in the FSB’s Foreign Exchange Benchmarks: Final Report dated 30 September 2014) are to be implemented by participants and benchmark administrators.
6. Enforceable undertakings are not off the table (see paras 53-57)
While ASIC emphasises that it will take enforcement action where it considers there has been unlawful conduct, it does not rule out enforceable undertakings as an appropriate enforcement remedy in relation to benchmark conduct.
Attachments
ASIC Report 440 published 8 July 2015
