‘Risible’: Federal Court justice slams $9.8m Westpac settlement

Westpac has agreed to pay $9.8 million to the corporate regulator for its unconscionable conduct during a 2021 transaction involving the largest one-time interest rate swap executed in Australian history – a “risible” penalty given the bank’s size and its conduct, the Federal Court has found.

On Tuesday, legal representatives for Westpac and the Australian Securities and Investments Commission (ASIC) appeared before the court in Sydney, where they proposed a settlement for the bank to pay a $1.8 million penalty and $8 million to cover ASIC’s litigation and investigation costs.

“The fact that there’s a pecuniary penalty of $1.8 million in these circumstances is something which I think would rightly shock the conscience of a large number of people,” said Federal Court Justice Michael Lee. “It’s a risible amount compared to the nature of the conduct and the size of the organisation.”

ASIC’s allegations of insider trading were dropped against Westpac after the bank agreed to a $9.8 million settlement.
ASIC’s allegations of insider trading were dropped against Westpac after the bank agreed to a $9.8 million settlement.Credit: Bloomberg

Under the settlement terms, Westpac agreed it had engaged in unconscionable conduct, had not clearly and fully disclosed its pre-hedging strategy, and had inadequate training and policies, but ASIC’s original insider trading allegations were dropped.

While Lee approved the financial settlement, he said there was a “striking and manifest disparity” between the nature of Westpac’s conduct and the maximum penalty allowed according to legislation.

In May 2021, ASIC alleged Westpac had breached its financial services license and caused detriment to its clients AustralianSuper and IFM when it was arranging a financial instrument used in large transactions to manage interest rate and currency fluctuations, known as an interest-rate swap.

‘It’s a risible amount compared to the nature of the conduct and the size of the organisation.’

Federal Court Justice Michael Lee

The case related to one of the biggest privatisation projects in recent Australian history: the sale of a 50.4 per cent stake in a 99-year lease of NSW energy company Ausgrid to the industry funds for $16 billion.

ASIC alleged that on the day the NSW government agreed to the sale, Westpac was aware it would be appointed by the industry super groups to arrange $12 billion of interest-rate swaps to underpin the deal, and made 876 trades in the morning to allegedly illegally profit before the deal was publicly announced.


While ASIC initially accused the bank of insider trading and unconscionable conduct towards two of its industry super clients during their purchase of a controlling stake in Ausgrid, the insider trading allegation was not pressed further under the proposed settlement on Tuesday.

A Westpac spokesman said the bank welcomed the withdrawal of insider trading allegations and had made a provision for the $9.8 million settlement in its 2023 financial year results. “We have already taken action to strengthen processes and policies in relation to pre-hedging activity,” he said.

Lee noted the court could only impose penalties allowed according to statute, but questioned how the $1.8 million penalty in this case could act as the intended deterrent, and whether the bank’s misconduct would be effectively communicated to the public.

“Members of the Australian public who make decisions about who they engage with in commercial transactions do not breathlessly sit down and read Federal Court judgements,” he said.

“A lot of people would be interested in whether or not someone with whom they choose to have a commercial relationship is someone who is breaking the law or not. Where there’s been breaches of statutory norms, why shouldn’t the public be told about that the most effective way possible, rather than going through the fiction that people are going to read Federal Court judgements?”

Lee said he would adjourn the matter to consider whether there should be additional terms requiring Westpac to publish information about its unconscionable conduct, and to consider the bank’s self-assessment process in which it would appoint an independent expert.

“You have Westpac doing a self-assessment, but then you’ve got them appointing someone,” he said, noting problems with selection bias. “I would like to be the person who’s selecting the individual with the benefit of the guidance of the parties.”

Lee said he would either make his final orders in chambers, or relist the case on a date to be determined if he required further submissions.

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