National Australia Bank Limited (NAB) will have to update a program concerning its wholesale spot FX business to which it agreed in December 2016 after an independent expert has detected deficiencies in the implementation of the program.
The Australian Securities and Investments Commission (ASIC) says it has accepted a variation to an enforceable undertaking provided by NAB relating to its wholesale spot FX business. The variation imposes additional undertakings.
Let’s recall that ASIC identified the following conduct by employees of NAB between January 1, 2008 and June 30, 2013:
- on several occasions, a NAB employee on an offshore spot FX desk, acting together with an employee of another Australian bank, shared confidential information and entered offers into the trading platform without any apparent legitimate commercial reason for placing the offers;
- on a number of occasions, NAB employees disclosed specific confidential details of pending client orders to external market participants, including identification of the client through the use of code names;
- on several occasions, NAB employees on an offshore spot FX desk inappropriately exchanged confidential and potentially material information about the bank’s client flow or proprietary positions.
ASIC said back then that it was concerned NAB did not ensure its systems, controls and supervision were adequate to prevent, detect and respond to such conduct, which had the potential to undermine confidence in the proper functioning of the market.
Under the original undertakings, NAB was set to develop a program of changes to its existing systems, controls, monitoring and supervision of employees within its foreign exchange business to prevent, detect and respond to types of conduct such as:
- attempts to manipulate the market for a currency, including by placing offers without a legitimate commercial reason and attempts to influence benchmark rates;
- inappropriate trading while in possession of confidential and potentially material information; and
- disclosures of client confidential information.
In accordance with the plan, NAB provided its program of changes in November 2017. In March 2018, the independent expert reported on NAB’s spot foreign exchange program noting significant deficiencies regarding its:
- Governance, Risk Management and Compliance Framework;
- Policies and Procedures;
- Risk Management Practices;
- Human Resource Management.
The independent expert also reported that it was impossible to complete an assessment of the program’s effectiveness because NAB has made incomplete progress in designing items to be included in the program.
The expert’s report states ‘progress in developing the program has been slow’ and that the program ‘appears to have evolved iteratively during 2017, rather than through a well-defined process. For example, there appears to have been no comprehensive risk assessment across NAB’s Spot FX business against the EU requirements and relevant regulatory standards and guidance.
The variation of the EU imposes an additional undertaking on NAB to prepare an updated program that adequately addresses all required components. This updated program will then be subjected to further assessment by the independent expert.
Commissioner Cathie Armour said, ‘ASIC’s ultimate objective is to ensure NAB has effective mechanisms in place to adequately train, monitor and supervise its employees to provide financial services efficiently, honestly and fairly’.
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