Australia’s securities regulator is probing Westpac Banking Corp. on allegations of insider trading, just months after the country’s second-biggest lender paid a record fine to settle breaches of anti-money laundering laws.
The allegations relate to Westpac’s role in executing a A$12 billion ($9.3 billion) interest-rate swap transaction with a consortium of AustralianSuper Pty Ltd. and a group of IFM entities in October 2016, according to a statement on Wednesday from the Australian Securities & Investments Commission.
The probe comes after Westpac paid an A$1.3 billion fine for violating rules to prevent money laundering last year, capping a saga that dented the bank’s reputation and cost former Chief Executive Officer Brian Hartzer his job. Scrutiny on the nation’s biggest banks remains intense after years of scandals and a litany of misbehavior plagued the institutions at the heart of Australia’s economy.
“The sad reality is the banks are often absorbing remediation costs, litigation costs, and penalties,” said Nathan Zaia, Sydney-based analyst at Morningstar Inc. It’s too early to know whether Westpac will be fined, though “we don’t envisage it being large enough to materially damage the equity value of the bank,” he said.
Westpac said it’s taking the new allegations seriously and is considering its position. Shares ended Wednesday down 0.1% in Sydney.
ASIC said it began proceedings Wednesday against the firm in the Federal Court for insider trading, unconscionable conduct and breaches of its Australian financial services licensee obligations.
According to the allegations, at about 7 a.m. on Oct. 20, 2016, the AustralianSuper consortium signed an agreement with the New South Wales government for the acquisition of Ausgrid, the state’s electricity infrastructure owner.
The regulator alleges that by about 8:30 a.m. Westpac knew, or believed, it would be selected by the consortium to execute the interest rate swap transaction on that morning. ASIC alleges this was inside information.
Then, when the market opened at 8:30 a.m., Westpac traders bought and sold interest rate derivative products in order to pre-position Westpac in anticipation of the execution of the swap transaction, according to the ASIC statement. The bank executed the trade at 10:27 a.m., the regulator said.
Westpac didn’t provide the consortium with full disclosure about its intention to pre-position its trading books prior to executing the swap transaction, ASIC said.
Interest rate swaps are futures contracts that aren’t traded on public exchanges.