Joe Longo: Earlier today ASIC announced that ANZ Bank has admitted to engaging in unconscionable conduct in services it provided to the Australian government, incorrectly reporting its bond trading data to the Australian government by tens of billions of dollars, and widespread misconduct across products and services provided by nearly 65,000 customers. We will be asking the Federal Court to approve penalties totalling $240 million for those issues.
Including today, ASIC has taken action against ANZ 11 times in just over a decade. We have been here before with ANZ. The bank has a history of non-compliance in markets matters, for misconduct in foreign exchange, continuous disclosure, and the bank bill swap rate matter. Clearly there are fundamental issues with ANZ’s risk and compliance culture that require the board’s and executives’ urgent attention.
Time and time again ANZ has fallen short. Time and time again ANZ has betrayed the trust of Australia. The issues we have found in the bank’s different divisions are a mix of widespread misconduct, repeated failures, and an unacceptable disregard for the trust customers put in banks. Trust is central in financial services. Customers, government and regulators need to be able to trust that banks will deliver what they promise, and uphold appropriate standards of behaviour. Today many Australians will rightly be questioning their trust in ANZ.
The penalties we will be asking the Court to impose, including a record penalty ASIC has sought for unconscionable conduct, reflects the seriousness and number of breaches of law, the vulnerable position that ANZ has put its customers in, and the repeated failure to rectify crucial issues. I would like to spend a moment to talk through the bond trading amount.
ANZ was chosen by the Australian government to help deliver a $14 billion bond deal. This is a prestigious and trusted role. ASIC’s position is that ANZ’s misconduct potentially made the government $26 million dollars worse off. That $26 million reflects that the bond futures price decreased by two basis points over the 45 minutes before pricing when ANZ traded most actively in the market. The critical issue here is that ANZ sold a significant volume of 10-year Australian bond futures around the time of pricing, which placed undue downward price pressure on the bond price.
ANZ was also not transparent with the government about its trading. A lower price for the bond meant the government raised less funds, money that might have been used to support essential services including Australia’s health and education systems, affecting all Australians. When public funds are put at risk like this, every Australian pays the price. As I said earlier, there are fundamental and significant issues that require urgent attention, and the ANZ board and its executives need to reflect upon them. ANZ needs to change.
I will now ask Deputy Chair Sarah Court to share some further details, and then we will take questions.
Sarah Court: Thanks Joe, good morning everyone. So I just want to put some more detail around ASIC’s actions today. We filed four sets of proceedings in the Federal Court. One of those relates to the bond trading matter that Joe’s talked about, and that also involves misreporting inaccurate data to the AOFM across nearly two years. As Joe has said, this encompasses unconscionable conduct, misleading conduct, and failures to act efficiently, honestly and fairly.
The remaining three matters though are what we might call retail matters, and these are matters that go to the heart of ANZ’s engagement with its customers, and unfortunately the kind of conduct we see in these matters has become very familiar to us. Collectively, the misconduct in these retail matters occurred over many years, and in our view is marked by ANZ’s significant failures to manage its non-financial risk across the bank.
The first matter relates to ANZ’s failure to respond to hundreds of financial hardship notices on time. Whether it was a customer facing unemployment, recovering from serious illness, grieving the loss of a loved one or escaping family violence, ANZ left these people without the help that they were asking for. In some cases, the bank pursued debt recovery even before acknowledging these hardship pleas.
The second matter spans over the course of a decade where ANZ failed at another core job of banking, paying the correct interest rate. ANZ promoted misleading bonus interest offers on new savings accounts, and then underpaid tens of thousands of customers once they had them through the door.
And in the third matter, in the most sensitive of circumstances, the handling of deceased estates, ANZ failed to refund fees charged to thousands of customers who had died, and failed to respond to their grieving families in a timely manner. These failures by ANZ likely made a difficult time even tougher, and compounded the distress these families were facing.
It’s now more than five years since the Banking Royal Commission, but disappointingly here we are yet again, with not one but four more examples of how ANZ has fallen short. This pattern of misconduct at ANZ stretches back beyond the Royal Commission and over nearly a decade. Including today, ASIC has now brought 11 civil proceedings against ANZ since 2016, and the ordered penalties, together with the proposed penalties today, total more than $310 million.
Trust is vital to banking. Australians who bank with ANZ trusted a bank of its size to get it right. ANZ has fallen short again. If these penalties are imposed by the court, it should be a clear message to ANZ and all other banks that the cost of breaking the law is not an acceptable cost of doing business. Thank you. I’m going to hand back to Joe for questions.
Joe Longo: Thanks Sarah.
Questions
Question: Mr Longo, Australia has a four pillars banking policy, has had it for a long time. Do you believe that that builds a level of complacency in those four banks to such a degree that that four pillars thing might need to be reviewed?
Joe Longo: The four banks pillar policy is not what we’re discussing today. I think what’s important about today is that ANZ be held accountable for its widespread misconduct, and in particular the unconscionable conduct, the contravention that it’s admitted to in connection with this bond trading.
Question: Mr Longo, is ASIC confident that ANZ did not attempt to manipulate the Australian government bond market, or is it just a settlement of opinions?
Joe Longo: No deals have been done. The ASIC conducted a very comprehensive intensive investigation over a nearly a two-year period. It had the benefit of market experts and senior counsel in conducting that investigation, and it concluded that there was evidence of unconscionable conduct, and not evidence of breaches of the market manipulation provisions of the Corporations Act.
Now I know something has been said about, oh, well, was it a finding of market manipulation? Which I find rather curious, because unconscionable conduct in these circumstances is an extremely serious contravention. It’s a breach of commercial confidence. ANZ did not do what it said it was going to do with the AOFM. It was not transparent, did not follow its own policies and procedures, did not keep AOFM informed, and even after the transaction when questions were raised by AOFM about issues it had, and indeed ASIC had at the time with the trading, they were misled again. This is very serious unconscionable conduct. So I think it’s rather curious that people should be concerned about market manipulation. It’s serious enough that we found a contravention that’s been admitted to unconscionable conduct.
Question: Mr Longo, one of the key messages ANZ put out today was that there was no financial loss to the Commonwealth. What do you think about that?
Joe Longo: ANZ have taken the view they’re not prepared to concede that the Commonwealth suffered a loss as a result of its conduct. It is prepared to concede that its trading had a downward pressure on the price of the Futures, but it has not conceded that the Commonwealth suffered a loss. That is not ASIC’s position. ASIC’s position is the Commonwealth did suffer a loss of around $26 million. And that is calculated by reference to the way the trading went and the value that was placed on that trading at that particular moment in time.
But I hasten to say that an $80 million penalty says a lot, doesn’t it? That’s the highest penalty for unconscionable conduct ASIC has ever achieved, subject of course to court approval. We’ll be asking the court to confirm that penalty of $80 million. ANZ is not prepared to concede the AFM have suffered any loss, but they have agreed to pay an $80 million penalty.
Question: Joe, ANZ has said today the market didn’t move that much, and they’ve given a series of comparisons to the call they’ve just made. Would that imply then that other banks are doing similar conduct?
Joe Longo: The statement of agreed facts makes it very clear that the way in which ANZ had conducted its responsibilities of the duration manager was outside market guidance and practice. These are agreed facts. They didn’t follow their own policies and procedures. Didn’t follow best practice. Did not keep AOFM informed. Did not treat AOFM fairly, which ANZ’s own documents required them to do.
Question: The ANZ bank says today it’s deeply sorry, that it’s going to change a whole bunch of things. Given their track record as you point out, they’re repeat offenders over years, is ANZ to be believed?
Joe Longo: We’ve conducted a very thorough investigation over a long period of time across a wide range of matters. Today ANZ have admitted the underlying facts, have admitted these contraventions. We are going to go to the court for approval of those outcomes. It’s now on ANZ. I noticed from the public statements this morning that they’ll be doing a remediation program. They’re conducting aspects to do with APRA. But long story short, of course we’ll be holding ANZ accountable over the next period of time to do what they said they were going to do.
Question: Mr Longo, how disappointing is it to see behaviour like this, especially given that Australian banks have been supported by the government in times of trouble such as during the GFC?
Joe Longo: Well I think misconduct of this kind is extremely disappointing. Particularly in circumstances – the unconscionable conduct case is really serious. It’s important for people to understand that the mandate, the responsibility that ANZ was given was actually a prestigious mandate; to be a duration manager for one of these big bond dealers is a real feather in the cap of the bank that wins these mandates. So what’s really disappointing is that ANZ went about misreporting over a two-year period its level of activity in the bond market, and then won this mandate, and then mishandled it. It’s really very disappointing.
Question: Mr Longo, can you comment on your dealings with the Chairman of ANZ and the management? I guess in the context of these repeated issues that you’ve outlined today over many years of time, are you satisfied that the bank has been governed appropriately, especially when it comes to light that the government, the Australian government has been misled by people within the bank?
Joe Longo: We’ve unearthed a range of misconduct, a range of contraventions that ANZ has admitted to. We will continue to have intense institutional monitoring engagement with ANZ. As we do more or less, I might add, with all the banks, but in particular with ANZ at the moment.
Given the seriousness and breadth of the issues that we’re dealing with today, you can expect ASIC to be watching very closely over the next year or two to see that ANZ actually does do what it said it’s going to do, and what it said it would do in its media statement this morning.
Question: Will financial penalties be enough to stop misconduct, given it hasn’t before? Do restrictions need to be placed on ANZ’s activity, like the government?
Joe Longo: As far as penalties go, we consider the penalties that we’re asking the court to impose in the circumstance of this matter as being proportionate and appropriate to the misconduct we found. ASIC has said over the last period of time that we need to, as a country, ensure that penalties for misconduct of this kind continue to be a real deterrent and not simply a cost of doing business. And I think Deputy Chair Court would add a few points to that as well.
Sarah Court: Well, I think just in relation to the question about penalties, these penalties are the highest penalties that ASIC has ever sought in relation to both unconscionable conduct, but also in relation to the retail matters. We’re looking at penalties at the very, very high end for both financial hardship, or charging incorrect interest rates, and for bonus saver accounts. So these penalties, we are of the view that penalties need to be imposed here, again subject to the court’s consideration, that really operate firstly to deter ANZ from engaging in misconduct any further, but also to send that broader deterrent message to the industry more broadly.
Question: Could you explain it to a layperson why ANZ’s mismanagement of the bond market deal matters?
Sarah Court: Yes, I’ll hand back to Joe for that.
Joe Longo: Could you repeat that question?
Question: Could you explain it for a general viewer why ANZ’s mismanagement of the bond market deal matters?
Joe Longo: Well when you borrow money, when we all have to borrow money, we pay interest. And interest rates go up and down. And so if the Commonwealth wants to borrow $13 or $14 billion, you can imagine the interest on that can go in all sorts of directions, unless it’s hedged or managed in a way so that from the beginning the Commonwealth knows how much money it’s going to get.
So what happened here is that we had four sophisticated banks helping the Commonwealth manage all the risk and making sure that debt gets bought, so that the money can be raised. And ANZ’s job was to manage the interest rate risk around the transaction of this size. And what ANZ have admitted to is mishandling their approach to doing this job, in a way that had an impact on the price of these bonds. And so in the end because of, ASIC would say, and ANZ have agreed, that their conduct had the potential to have a downward effect on the bond price.
This is a highly technical trading issue. But at the end of the day the practical effect of it is, is that the Commonwealth ended up having to pay more to raise this money than it needed to, that’s ASIC’s position. And we think, our calculation is that that cost was in the order of $26 million. But at the heart of it is just managing this interest rates go up and down, which all Australians can relate to that.
Question: Mr Longo, I know it’s been agreed, but are you satisfied with the ANZ line that this was unintentional, that the misreporting of bond turnover was unintentional, and the movements in the market and the actions and withheld information is all unintentional? I guess it just seems that given – it all seems very coincidental to regard it as unintentional.
Joe Longo: Well, as far as the unconscionable conduct is concerned it was clearly grubby. I mean let’s be frank. They said they were going to be frank in their communication to AOFM; they weren’t. They said they were going to follow their own policy and procedures; they didn’t. They well understood the inherent conflict of being a duration manager, while also discharging their responsibilities to AOFM.
Now, none of that conduct is regarded as intentional, but the cumulative effect of it is unconscionable conduct. And so far as the misreporting goes, when you read the statement of facts, there were repeated failures internally with the data and the systems and the processes, and there were several opportunities to rectify their reporting. But through a combination of organisational incompetence and failure to get a grip on their own data and systems and processes, they let themselves down. Having said all that, objectively, it wasn’t intentional. But it was certainly incompetent.
Question: You’ve said more than incompetent; you just called it grubby.
Joe Longo: That’s right it was grubby. The unconscionable conduct, the behaviour of ANZ through the process in that day in April 2023, was grubby in the sense that in so many ways that are laid out in the statement of agreed facts – these are facts that – these are admissions ANZ have made. They’ve admitted that their own compliance and risk people weren’t keeping proper records during the time that the pricing was going on, that they weren’t keeping AOFM informed. They’ve admitted that their approach to doing their responsibilities as duration manager was outside what the market normally does. It’s all in the statement of agreed facts.
So I think to my mind, I’ve just been asked a moment ago what word could I use to sort of have resonance with ordinary Australians. Well I think that’s grubby. You’re not doing what you said you’re going to do. That’s grubby.
Question: Mr Longo, you were asked before about whether these penalties are enough of a deterrence. Does it worry you that at the end of the day it’s just a big cheque within the shareholders, and there’s maybe less personal consequences? I mean we’ve seen it with several sort of interest rate or bond trading now over-the-counter issues where there seems to be an expectation very early on that ultimately this will all be dealt with at a higher level, and everyone involved will be protected by the bank, and the settlements will be agreed above. And that that’s probably, or at least that’s one theory why this is why it will happen again, probably.
Joe Longo: For today’s purposes we’re not making any allegations against individuals. But this is an institutional failure by ANZ. I think their own media release this morning pointed to quite a wide range of individuals were involved, and I gather internal accountability is playing out. But in the end this is an institutional failure. It’s a failure of ANZ’s capability around managing non-financial risk. That’s what they need to be focused on. Now the size of the penalties, I mean, I’m happy to hand back to the Deputy Chair Court about ASIC’s best thinking on that subject.
Sarah Court: Well as I’m probably just repeating what I’ve said earlier, that these penalties are at a record level for ASIC, and the purpose of penalties, just to remember, is deterrence. That’s what the judges have said. So both specific deterrence for ANZ, but also to send broader general deterrence messages. The cumulative penalties here are the highest that ASIC has ever sought against a single entity. The penalty for unconscionable conduct is by far the highest penalty for that kind of conduct that ASIC has sought in relation to a financial institution of any description. So these are significant penalties. They’re designed to send a clear message to ANZ, its board, its executives of how seriously ASIC views this combination of non-management of non-financial risk across the board.
Question: In your dealings with ANZ do you think they’ve received the message that they failed?
Sarah Court: I think I can speak for Joe and I both to say we’re not going to talk about our engagements with ANZ. The purpose of these proceedings is to send a very clear message to ANZ and more broadly that conduct of this kind, whether it’s in market matters, whether it’s dealing with your consumers, we’re not going to accept it anymore. These penalties should send a very clear message of the regulator’s view of this misconduct, that as we’ve said, again and again, it’s now going to – it’s got to stop here.
Question: Just a question on First Guardian. Why did ASIC take so long to act against First Guardian when it got reports of illegality as early as March 2022, and concerns about financial advisors as early as 2021?
Sarah Court: Look, we’re not here to talk about First Guardian this morning, but I’m very happy to talk to you about that separately. There are a range of issues we can talk about in relation to that matter. Today the focus is on ANZ.
