ASIC accepts enforceable undertaking from Macquarie Bank to address inadequacies within their wholesale FX businesses
ASIC has today accepted an enforceable undertaking (EU) from Macquarie Bank Limited in relation to the bank’s wholesale foreign exchange (FX) businesses, following an ASIC investigation.
ASIC is concerned that the bank failed to ensure that its systems and controls were adequate to address risks relating to instances of inappropriate conduct identified by ASIC.
ASIC Commissioner Cathie Armour said, ‘The wholesale spot foreign exchange market is one the world’s largest financial markets and the proper functioning of this market is of vital importance to the Australian economy.’
‘ASIC has now accepted undertakings from some of Australia’s largest market participants to put in place forward looking processes and controls to ensure that their foreign exchange businesses provide financial services honestly, efficiently and fairly.’
‘ASIC will continue to ensure that there can be ongoing confidence in how our financial institutions conduct themselves now and into the future,’ Ms Armour said.
ASIC identified the following conduct by employees of Macquarie in its spot FX business between 1 January 2008 and 30 June 2013:
- On a number of occasions, Macquarie employees disclosed to external third parties confidential details of pending client orders including identification of a client;
- On a number of occasions, Macquarie employees inappropriately disclosed to external third parties confidential and potentially material information about Macquarie’s trading activity associated with large pending AUD orders; and
- On a number of occasions, when the market approached the trigger price of a stop loss order, Macquarie spot FX traders responsible for managing the order traded in a manner that may have been intended to cause the trigger price to trade when it might not have traded at that time.
ASIC is concerned that Macquarie did not ensure that its systems, controls and framework for supervision and monitoring were adequate to prevent, detect and respond to such conduct, which had the potential to undermine confidence in the proper functioning and integrity of the market.
Macquarie will develop a program of changes to its existing systems, controls, training, guidance and framework for monitoring and supervision of employees in its spot FX and non-deliverable forwards businesses to prevent, detect and respond to:
- inappropriate disclosure of confidential information to external market participants; and
- inappropriate order management and trading in respect of stop loss orders.
ASIC will appoint an independent consultant to assess the program and its implementation. The program will incorporate changes already made by Macquarie as part of ongoing reviews of its businesses.
Upon implementation of that program, for a period of three years, Macquarie will conduct an annual internal review of the program, which will be independently assessed, and provide an annual attestation from its senior executives to ASIC.
Macquarie will also make a community benefit payment of $2 million to The Smith Family to support The Smith Family’s financial services program aimed at improving young people’s understanding of money management.
ASIC encourages market participants to adhere to high standards of market practice, including those set out in the Global Code of Conduct for the Foreign Exchange Market, published by the Bank of International Settlements (BIS Global FX Code). The BIS Global FX Code provides a global set of practice guidelines to promote the integrity and effective functioning of the wholesale FX market. Phase 1 of the Code was published in May 2016, and Phase 2 is due for publication in May 2017.
ASIC is grateful for the assistance of international regulatory counterparts in progressing the investigation.
Prior to accepting these EU from Macquarie, ASIC’s FX investigation has seen ASIC accept enforceable undertakings from each of the Westpac Banking Corporation, Australia and New Zealand Banking Group Limited, National Australia Bank Limited and the Commonwealth Bank of Australia (refer: 17-065MR and 16-455MR). The institutions also made voluntary contributions totalling $11 million to fund independent financial literacy projects in Australia.
The wholesale spot FX market is an important financial market for Australia. It facilitates the exchange of one currency for another and thus allows market participants to buy and sell foreign currencies. As part of its spot FX business, Macquarie entered into different types of spot FX agreements with its clients, including Australian clients.
Spot FX refers to FX contracts involving the exchange of two currencies at a price (exchange rate) agreed on a date (the trade date), and which are usually settled two business days from the trade date.
Non-deliverable forwards refer to FX forward contracts which, at maturity, are settled by calculating the difference between the agreed forward rate and a settlement rate (which is usually determined by reference to a benchmark published exchange rate). A FX forward contract is an agreement between two counterparties to exchange currencies at a future date at a rate agreed upon in advance.