Fergus Clark
Fergus Clark is a Principal Consultant with GBRW Expert Witness. He is a qualified solicitor who has practised law in Australia and England and has 17 years of international banking experience with banks including RBS, HSBC and Commonwealth Bank of Australia. Fergus has held senior roles in financial markets, structured finance and credit risk management. During 2016 he spent nine months on assignment with a top 50 publicly-listed Australian corporate. He comments on expert witness services in the Australian market.

Expert witness requirements in Australia

Australia is an equally sophisticated market for expert witness services when compared with larger jurisdictions. We have also observed a tendency for regulator-led litigation to mirror similar action in other countries. During 2016, a good example of this - and one of the hottest topics - was the Bank Bill Swap Rate (BBSW) litigation.

The Australian Securities & Investments Commission (ASIC) investigations and proceedings against three of the “Big Four” Australian banks are based on allegations that they have manipulated BBSW with the intention of profiting from their BBSW-based derivatives positions.

BBSW is an interest rate benchmark (similar to LIBOR and others) designed to reflect the cost of borrowing by banks. The ASIC proceedings echo regulator- led investigations against banks in other jurisdictions for manipulating other interest rate benchmarks such as USD-LIBOR, Yen LIBOR and Euribor.

BBSW is similar to LIBOR and others in that these interest rate benchmarks are determined by a panel of banks using a “trimmed mean” method. However, there is also a key difference. LIBOR panel banks submitted bids intended to answer the question “at what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size?” On the other hand, BBSW is calculated based on 14 panel banks’ observed rates in an actively traded market for paper of the country’s “Big Four” banks. In other words, rather than being a bank’s estimate of its own cost of funds (which is open to direct manipulation by the bank itself), it reflects the rate at which market participants are willing to lend to the four prime banks.

“Forms of manipulation can depend on a number of factors, including the composition of the submitting panel and trading volumes....”

Forms of manipulation can depend on a number of factors, including the composition of the submitting panel and trading volumes. LIBOR investigations show that motives to manipulate rates can be categorised under three main headings:

  • Reputation: If a bank’s management is concerned that posting its “true” cost of funds might cause investors to perceive the bank as financially weak, they may be motivated to submit a low rate. This action is particularly in the bank’s interest during periods of stress.
  • Collusion: This can arise out of poor internal controls. Direct collusion occurs among traders (at the same bank or across different banks). Indirect collusion via intermediary brokers was seen in the case of UBS.
  • Rogue traders: Traders having sizeable positions in assets or derivatives that are linked to LIBOR had personal incentives to manipulate LIBOR to gain from the resulting change in the rate. The BBSW litigation is ongoing. Our previous experience with LIBOR- related expert work in the UK suggests that it will throw up a number of significant challenges, not least for ASIC in obtaining sufficient evidence to lead a successful case against the defendants.

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Croft, Tim Dowlen, David Ellis,
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