Westpac Banking Corporation (Westpac) has paid a penalty of $127,250 to comply with an infringement notice (Infringement Notice) given to it by ASIC.
The infringement notice was issued in response to an alleged breach of the ASIC Derivative Transactions (Reporting) Rules 2013 (ASIC Rules) during the period from 2 October 2013 to 30 April 2015.
This is the first notice issued and penalty paid under the ASIC Rules, which require counterparties to report derivative transaction and position information to derivative trade repositories.
During the relevant period, Westpac failed to report information about 112,556 Reportable Transactions as required by the ASIC Rules. The Infringement Notice identifies 398 alleged contraventions of subrule 2.1.1(1), being one alleged contravention for each Business Day during the relevant period.
Compliance with the Infringement Notice is not an admission of guilt or liability and Westpac is not taken to have contravened subrule 2.1.1(1).
The conduct which is the subject of the notice is summarised below.
Background
ASIC issued the infringement notice as it had reasonable grounds to believe that Westpac contravened subrule 2.1.1(1) of the of the ASIC Rules, which required Westpac to report information about each of its Reportable Transactions that was the entry into an OTC Derivative to a Licensed Repository or a Prescribed Repository, generally by no later than the end of the next Business Day after entry into the OTC Derivative.
Westpac designed its derivative transaction reporting systems with the understanding that Westpac's reporting system captured all relevant transactions required to be reported under the ASIC Rules.
That understanding was erroneous as certain transactions (FMS Transactions) that were Reportable Transactions and were entered into Westpac’s deal capture system flowed through to an accounting and settlement system known as “FMS” and did not flow through to Westpac's reporting system to be extracted for reporting purposes.
Westpac became aware of this flaw in July 2014, though the team did not know at that time the number of FMS Transactions that had not been reported due to the reporting system flaw.
At the time Westpac determined that it would not have been reasonable to divert significant project resources from management of ongoing development and implementation of new reporting processes and fields to further investigate what it expected to be a potentially small number of Reportable Transactions.
In the months leading up to 1 October 2014, Westpac undertook a significant program of work to address reporting consent requirements for transaction reporting under the ASIC Rules. Westpac prioritised its resources on external counterparties and system building to manage these requirements. Further analysis and verification of the FMS Transactions remained an outstanding task to be completed at a later date.
By March 2015, an investigation by Westpac into the transaction information for FMS Transactions showed that there was potentially a material population of underlying foreign exchange derivative transactions transacted by the business and retail channels that were not feeding into Westpac's core trade reporting processes.
Westpac reported the Unreported Transactions to DTCC between 1 January 2016 and 22 January 2016. However those transactions were submitted to DTCC by Westpac with the counterparty buyer/seller information inadvertently reversed.