The conduct regulator has just accepted their second court enforceable undertaking (EU) from Commonwealth Bank of Australia in five days.
The earlier EU was in relation to a commitment to change the way their superannuation products were ‘distributed’.
This EU is in connection to their role in setting the bank bill swap rate (BBSW).
The Australian Securities and Investments Commission (ASIC) said that the member of the big four must pay $15 million which will be directed to ‘community benefit’ and then an additional $5 million will go to the regulator’s legal and investigation costs. Add that to the $5 million in penalties and that adds up to $25 million.
The EU states that under the agreement between the regulator and the banking independent expert will be appointed and ‘terms of engagement’ will be drafted for the independent expert.
It continues that within three months of the appointment of the independent expert, CBA will present a BBSW Program with clearly established controls with this program:
“The establishment of BBSW controls to ensure compliance with the ASX BBSW Trade and Trade Reporting Guidelines.”
It continues that there will also be renewed guidance and training with revisions to the policies and procedures.
For the training, in particular, the EU is calling for ….”A mandatory face-to-face training program by an appropriately qualified external independent training provider (endorsed by an external industry expert), which includes a compulsory test, for current CBA Traders and Current CBA Supervisors.”
This training would be aimed at:
• compliance with the Corporations Act
• considering the interests of all stakeholders
• ethics and conflicts of interest
• adhering to the integrity of a benchmark
An Opportunity for Compliance
In a presentation delivered at a GRC Institute event two years ago, Peter Whyntie from Peter Whyntie & Associates said that an EU can be a good thing.
“My view of EUs is that they are generally given out to the good guys. In other words, if you have seriously broken the law, and the regulator doesn’t trust that you are going to do the right thing, then they are not going to give you an EU,” he said.
Although this is an opportunity for the organisations and the compliance professional this not an easy way out.
He then quoted former Australian Consumer Commission Chairman Alan Fels who said about EUs that ‘Whatever the fine is, the cost to the organisation is at least ten times that.’
Whyntie stressed that once the EU is complete organisations should not repeat the actions that led them to the EU in the first place
“…that sum together with the other payments all totalling $25 million should be an adequate denouncement of and deterrence against the unacceptable trading behaviour of individuals within CBA that ought to have known better and a bank that ought to have better supervised its personnel,” Federal Court Justice Jonathan Beach said.
ASIC said this EU follows the civil proceeding that has been brought against the other three members of the big four.
In May the federal court found Westpac guilty of unconscionable conduct for the way that it tried to affect the BBSW.
A further hearing for Westpac will be held on 12 October penalties.
Deeper cultural self-reflection
Are these measures enough?
David Bartlett, Corporate Criminologist wrote in the Winter Edition of the GRC Professional Magazine that “Often, when corporate wrong-doing comes to light, it is portrayed in one of two ways: (a) the actions of a rogue employee, or (b) a symptom of organisational failings, typically from poor corporate governance or incentivising poor behaviour.”
He argued that this binary, good or bad, the approach does not go very far in explaining why the ‘offending’ behaviour in the first place.
The other challenge is that policies and procedures are not enough.
Bartlett writes “This aligns with recent research from the US, which found corporate self-regulation measures such as ethics training, random audits and whistle-blower hotlines have limited impact on an employee’s decision to commit wrong-doing.
Advice for dealing with an EU
Peter Whyntie’s list of what to do if you receive an EU:
• Consider engaging an experienced adviser
• Appoint a business general manager to lead the process
• Apply rigorous project management
• Whatever money and time estimated—double it and then double it again
• Communicate early and frequently
• Exploit to gain maximum benefits and lasting change