A federal court clears the bank of the more serious charge of manipulating the bank bill swap rate

This article is more than 2 years old

This article is more than 2 years old

Westpac engaged in “unconscionable conduct” in trying to influence a key short-term interest rate for borrowing between banks, a federal court has found.

But the bank was cleared of allegations brought by the corporate regulator, the Australian Securities and Investments Commission, which said it had manipulated the bank bill swap rate, a key rate that affects the rate at which institutions borrow and lend money.

Sign up to receive the top stories in Australia every day at noon



Asic had accused the bank of engaging in misconduct and market manipulation to push the bank bill swap rate higher or lower between 2010 and 2012.



Justice Jonathan Beach, sitting in Melbourne, said Asic did not prove that Westpac – under fire at the royal commission into financial services this week for its lending policies – had manipulated the rate.

However, he did find the bank engaged in “unconscionable conduct” four times between April and December 2010 by trading prime bank bills in the bank bill market, with the dominant aim of influencing yields and where the bank bill swap rate was set.

Commonwealth Bank traded bank bills in unconscionable way, court told Read more

Efforts by the bank’s management to tackle the problem were made too late.

“Many of the steps it took after July 2012 should have been in place during the relevant period,” Beach said.

“Further, in my view Westpac failed to ensure its traders were adequately trained not to engage in trading with such a sole or dominant purpose.

“This should have been reinforced and stipulated to them orally and in writing.”

As a result, Westpac also contravened the Corporations Act by breaching its financial services obligations.

Libor scandal: the bankers who fixed the world’s most important number | Liam Vaughan and Gavin Finch Read more

The bank bill swap rate functions in a similar way to the Libor rate used by banks in New York, London and other markets for short-term loans. A series of scandals have exposed widespread manipulation of Libor and banks have been forced to pay billions of dollars in fines as punishment. One London trader, Tom Hayes, who worked for UBS and Citi, was jailed for 11 years for his role in manipulating Libor, which is now being phased out and replaced by a different system.

In the Australian case, the other three big banks settled out of court over the same accusation of rate rigging but Westpac decided to fight.



The CBA earlier agreed to pay $25m, ANZ settled in November for $50m, and NAB in October for the same amount.

Costs were reserved at Thursday’s hearing, with parties invited to make submissions and the case adjourned to a date to be fixed.