ANZ could face class action over alleged interest rate rigging

The corporate watchdog alleges ANZ rigged a key interest rate. Photo: Glenn Hunt

A leading litigation firm has investigated a potential class action against ANZ Bank over allegations it rigged a critical interest rate, as other banks' behaviour is also probed by the corporate watchdog.

The Australian Securities and Investments Commission last week said it would take on one of the country's biggest banks in the courts over claims it manipulated the bank bill swap rate (BBSW), the result of a long-running investigation that is likely to embroil other lenders.

ANZ has rejected the allegations and is promising to defend them "vigorously".

It is the understood the explosive case against ANZ was launched after settlement talks between ANZ and ASIC hit a wall, because the bank would not agree to the regulator's demanded terms of conditions, including an admission of guilt.

ASIC sees this as crucial to making sure banks are held accountable. But it is understood ANZ thought this could leave it exposed to potential class actions, and a leading firm confirmed this was a possibility on Sunday.

It came as legal experts said the stakes were extremely high for ANZ as its financial services licence was on the line – though ASIC may face an uphill battle in proving market manipulation against the lender.

ASIC claims ANZ's behaviour is likely to have caused "financial detriment" to customers with the opposite exposure to the BBSW, or products that were referenced to BBSW, than ANZ.

This is a potentially very large pool of victims, and litigation firm Maurice Blackburn confirmed on Sunday that it had investigated a possible action over the matter.

"I can confirm that Maurice Blackburn is looking at this matter, and a class action could be a possibility," a spokeswoman said.

The case – if it goes to court – will put the spotlight on bank conduct in the setting of the BBSW, which is used as a benchmark rate for a wide range of business loans.

Financial services licence breaches

ASIC's draft statement of claim alleges ANZ engaged in market manipulation, unconscionable conduct and the bank breached conditions of its financial services licence.

Professor of corporate law at Western Sydney University Michael Adams said in his 30 years' experience of working in the law, cases brought on market manipulation were rarely successful unless there was a guilty plea.

"The evidence required is going to be quite phenomenal, so I think they're going to have an uphill road on the market manipulation provision," he said.

He said the case law on unconscionable conduct also suggested this was a "hard road to win" for ASIC, but its claims ANZ breached certain licence conditions were "very smart".

The licence provisions were quite technical, he said, but ASIC's track record in enforcing licence conditions was solid, and holding a licence was critical to any bank.

"If this succeeds, ANZ Bank's reputation will be in tatters. It's not just a technical breach, hence why ANZ will fight it tooth and nail, because their whole professional reputation will be at stake," Professor Adams said.

James Wheeldon, a corporate lawyer who used to work at ASIC, also highlighted the difficulty of proving market manipulation. To do so, ASIC would need to prove that an "artificial price" had been created by the behaviour of ANZ traders.

"Proving market manipulation, the one thing that you have to prove is, did it have the effect of creating an artificial price in the security? And that's not at all straightforward," he said.

"Obviously ANZ feels like they have got a defence on this. Their financial services licence is at risk , theoretically, if they lose this. The reputational costs are massive."

He said ASIC's unconscionable conduct claim was less likely to get bogged down in complex technical discussions, but he was not aware of the regulator winning cases on this specific issue.

Proving the bank had engaged in unconscionable conduct would be be "groundbreaking", he said, but based on the limited information released so far he thought ASIC's argument sounded like it "had legs".

The Australian Prudential Regulation Authority said it could not comment because it cannot discuss individual institutions that it regulates.