CBA, ASIC settle rate-rigging case

Commonwealth Bank of Australia (CBA) has reached an agreement with the Australian Securities and Investments Commission (ASIC) to pay a total of $25 million to settle legal proceedings relating to claims the bank manipulated the Bank Bill Swap Rate (BBSW).

“As part of the in-principle settlement, CBA will acknowledge that, in the course of trading on the BBSW market in Australia on five occasions between February and June 2012, CBA attempted to engage in unconscionable conduct in breach of the ASIC Act, the bank said.

“CBA will also acknowledge it did not have adequate policies and systems in place to monitor the trading and communications of its staff in order to prevent that conduct from occurring.”

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Subject to the Federal Court’s approval of the settlement, CBA said it would pay a $5 million penalty, a payment of $15 million to a financial consumer protection fund and a $5 million payment towards ASIC's legal costs.

CBA said it had also agreed to enter an enforceable undertaking with ASIC, under which an independent expert will be appointed to review controls, policies, training and monitoring in relation to its BBSW business.

Earlier on Wednesday, CBA announced an underlying cash profit of around $2.3 billion for the third quarter ended March 2018, up 9 per cent on the same quarter in the prior year.

However, underlying operating income fell 4 per cent due to a $100 million hit as a result of there being two fewer days in the quarter, slightly lower net interest margins from customers switching from interest-only to principal and interest home loans, as well as higher basis risk, the bank said.

Other banking income was down due to lower treasury and trading performance, as well as seasonally lower card fee income.

Underlying operating costs rose by 3 per cent in the quarter, the bank said, driven by increased provisions for regulatory and compliance project spending.

CBA said the credit quality of its lending portfolios remained “sound,” with bad loan expense of $261 million in the quarter equal to 14 basis points of gross loans.

However, consumer arrears were seasonally higher in the third quarter, the bank said.

“There has been an uptick in home loan arrears, influenced by a small number of customers experiencing difficulties with rising essential costs and limited income growth,” CBA said.

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