Treasurer Morrison has released new rules around the setting of the critical market benchmarks like bank bill swap rate (BBSW), which set pricing for many financial products. The rules cover how the BBSW is set and how the rate setting mechanism will be administered and licensed. However, the banks though still run the show. We think there is a case of an independent reference rate. And is the timing convenient, ahead of the banks appearance before the economic committee this week, to defuse the BBSW issue?
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.
Morrison took recommendations have been jointly developed by the Australian Securities and Investments Commission (ASIC), the Reserve Bank of Australia, the Australian Prudential Regulation Authority and the Commonwealth Treasury aka the Council of Financial Regulators (CFR).
To achieve the objectives outlined above, the CFR broadly recommends that:
- significant benchmarks (broadly, systemically important benchmarks and those that will have a significant impact on investors) be covered by the regulatory regime;
- significant benchmarks be identified in a publicly accessible list that can be amended;
- administrators of significant benchmarks be required to hold a new, standalone, ‘benchmark administration licence’ unless granted an exemption, and the licence be supported by ASIC powers to write rules imposing obligations;
- an ‘opt-in’ mechanism be created to allow administrators of non-significant financial benchmarks to apply to be licensed if they meet licensing requirements and doing so has value;
- submitters to regulated benchmarks be required to comply with ASIC rules on regulatory matters related to benchmark submission, with benchmark administrators having primary responsibility for the operation of the benchmark;
- ASIC be given the power to write rules to compel submission to a significant benchmark as a last resort when necessary to support market functioning;
- the manipulation of any financial benchmark (significant or non-significant) be made a specific criminal and civil offence; and Bank Accepted Bills and Negotiable Certificates of Deposit be expressly made financial products for the purposes of the offence provisions of Chapter 7 of the Corporations Act 2001.
So, the banks still maintain control of the BBSW. These changes are really pretty weak.
