28 March 2018

Strengthening financial regulation

Financial institutions that manipulate financial benchmarks will now be hit with specific civil and criminal penalties – thanks to amendments legislated by the Turnbull Government today.

The law will better protect Australians from the possible abuse of financial markets by sophisticated financial institutions.

The manipulation of any financial benchmark, or product used to determine such a benchmark, is now a specific offence and subject to civil and criminal penalties.

This includes maximum penalties of up to $945,000 and/or 10 years imprisonment for individuals and up to $9.45 million for bodies corporate.

Importantly, these penalties can be used against foreign nationals and bodies corporate, even when the conduct occurs abroad and results in an Australian entity suffering a financial loss or other disadvantage.

Financial benchmarks are used to help value trillions of dollars of financial products and have proven to be a weak spot in the international system of financial regulation.

There have been many cases of market misconduct regarding the determination of financial benchmarks, such as the London Interbank Offer Rate (LIBOR), all around the world.

Administrators of significant benchmarks will now be required to hold a ‘benchmark administrator’ license and comply with enforceable rules made by the Australian Securities and Investments Commission (ASIC).

The law will also provide ASIC with a new power to compel submission to a significant financial benchmark – as a last resort – in the case that other calculation mechanisms have failed and the continued generation of the financial benchmark is threatened.

Under the law, legitimate business activity that has the effect of moving a benchmark (but not the intent) would not constitute an offence.

I am pleased these reforms will bolster critical components of our market architecture and improve the integrity, resilience and fairness of the Australian financial system.

Furthermore, they will align our regulatory regime with international best practice, including regimes in the United Kingdom, the European Union, Japan, Singapore and Canada.