ANZ Group says it received no financial gain through the actions of 2 Singapore traders implicated in interest rate manipulation scandal

By Gareth Vaughan

ANZ, which along with Macquarie has become the first Australasian bank named in an international interest rate fixing scandal, says it received no financial gain through the activities of its traders in Singapore.

After a year-long inquiry the Monetary Authority of Singapore (MAS) is taking action against banks for deficiencies in their governance, risk management, internal controls, and surveillance systems.

The review covered the Singapore dollar interest rate benchmarks; being the Singapore Interbank Offered Rates (SIBOR) and Swap Offered Rates (SOR), and the Foreign Exchange spot benchmarks (FX Benchmarks) commonly used to settle Non-Deliverable Forward FX contracts, over the period from 2007 to 2011.

ANZ was one of 20 banks fingered by MAS. ANZ's punishment is at the lower end of the scale dished out (see chart at the foot of this story). A total of 133 traders across the banks were implicated with three-quarters of them having resigned or been asked to leave their job. ANZ must make an additional statutory cash reserve contribution within the range of SG$100 million (about NZ$98.6 million) to SG$300 million (NZ$295.8 million) at zero interest for 12 months.

An ANZ Group spokesman told interest.co.nz the bank had fully cooperated and participated in the MAS review. This included commissioning an independent review of the bank's rates submissions and associated communications. ANZ was not required to conduct a review for SIBOR as it's not a contributing bank.

"Our inclusion was on the basis of contributing to SOR, Non-Deliverable Forwards (NDF) and Interest Rate Swaps (IRS)," the spokesman said.

Although no ANZ staff had been dismissed, "appropriate" disciplinary action had been taken towards a small number of staff. Pushed for further detail on this the spokesman said; "The disciplinary action involved claw back of bonuses. Two staff members were involved."

"The disciplinary action resulted from breaches of ANZ's Code of Conduct. There was no effect on any ANZ customer and no financial gain involved for ANZ," the ANZ spokesman added.

Reputational issues?

Asked whether ANZ was concerned about potential damage to its reputation and how it might mitigate this, the spokesman said; "Ensuring full compliance with regulation is a key priority for ANZ. While the 12-month Statutory Cash Reserve contribution required by MAS was within the lowest range of SG$100-300m, we take this seriously and have initiated a number of actions to strengthen ANZ’s internal rate setting process."

Speaking last August after rivals Standard Chartered and HSBC were embroiled in major money laundering scandals, ANZ Group CEO Mike Smith warned there was "contagion risk" from the reputational knocks some global banks were taking. ANZ had to strive to maintain its own reputation, Smith said. HSBC and Standard Chartered are among the biggest commercial banks in Asia where ANZ, under Smith's "super-regional strategy," has been targeting growth.

"Obviously banking globally is facing significant reputational challenges. There's bound to be some sort of spill over issues here in Australia and we need to redouble our efforts with customers and, of course, with the broader community," Smith said at that time.

"There's always going to be a slight contagion risk with this and we do have to work very carefully on ensuring our reputation is maintained."

Asked whether ANZ could profit from HSBC and Standard Chartered's woes Smith said it was in a good position to do so.

"When organisations do have problems, when these things do happen, it does provide opportunity for others and I think we're very well placed right now to take advantage of those situations."

Singapore action on the heels of LIBOR etc

The regulatory action over attempted interest rate manipulation in Singapore comes on top of similar actions by regulators elsewhere around the world over the past year or two. In the highest profile situation, traders at some of the world’s biggest banks were found to have rigged the London interbank offered rate (LIBOR). Key financial benchmarks in the United States, Europe and Japan have also been the subject of attempted manipulation with fines reaching billions of dollars imposed. The Singapore action is the first to feature Australian banks.

However, earlier this year The Australian Financial Review said a US Commodity Futures Trading Commission report had noted UBS traders tried to manipulate Australia’s key financial market benchmark, the bank bill swap rate, between 2005 and 2010.  Paul Atmore, CEO of the New Zealand Financial Markets Association which oversees New Zealand's LIBOR equivalent, told interest.co.nz last year the local version is "global best practice" and he's confident it can't be gamed.

Meanwhile, the ANZ spokesman added that ahead of the outcome of the MAS Review the bank initiated action to strengthen its internal rate setting process. This included:

o Increasing the robustness of the rate setting process

o Adding new protocols and oversight of rate setting process

o Additional training to enhance a culture of risk effectiveness and compliance within global markets

o Ensuring adequate segregation of duties to ensure no conflict of interest.

'No material liquidity impact'

The additional statutory cash reserve contribution in Singapore wouldn't have a material liquidity impact on ANZ's Singapore operations, the ANZ spokesman said.

For its part MAS says it has censured the banks and directed them to adopt measures to address their deficiencies. The banks must report their progress on a quarterly basis, and conduct independent reviews to ensure the robustness of their remedial measures.

MAS says a total of 133 traders were found to have engaged in several attempts to inappropriately influence the benchmarks.

"While there is no conclusive finding that SIBOR, SOR and FX Benchmarks were successfully manipulated, the traders’ conduct reflected a lack of professional ethics. Although the number of traders involved represents a small proportion of the trading community in Singapore, MAS takes a serious view of the need to uphold high standards of integrity in the industry and expects banks to foster a culture of ethical conduct among all their employees," says MAS.

"The respective banks have taken disciplinary actions against the traders involved. About three-quarters of these traders have resigned from or have been asked to leave their banks. The rest of the traders who remain employed by their banks have been, or will be, subject to disciplinary actions."

The ANZ spokesman said all the bank's employees are required to comply with ANZ’s global Code of Conduct, on which training and communication is regularly provided.

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