Macquarie reprimanded again for derivatives compliance failures

ASIC is again taking action against Macquarie Bank for "multiple and significant compliance failures" relating to its futures-dealing business and over-the-counter (OTC) derivatives trade reporting.

The failures have been undetected for many years, including one that lingered for a decade, ASIC said, forcing it to impose licence conditions on Macquarie.

Macquarie's "control weaknesses" ranged from poor change management practices, unclear roles and responsibilities, and an incomplete understanding of its own processes and controls, including around data governance.

The bank will now have to prepare a remediation plan to address its failures in the futures dealing business and OTC derivatives trade reporting functions and explain their root causes.

It must appoint an independent expert to review and report on the adequacy of its remediation plan to address the failures and their root causes.

Finally, Macquarie's independent expert must assess the operational effectiveness of its remediation activities to prevent, detect and respond to similar issues occurring in its futures dealing and OTC derivatives businesses in the future.

Last September, ASIC slapped Macquarie a $5 million fine for its failure to curb suspicious order transactions on electricity futures.

ASIC's Markets Disciplinary Panel (MDP) found Macquarie breached market integrity rules on 50 occasions between January to September 2022, allowing three of its clients to place suspicious orders.

In a follow-up investigation, ASIC found that Macquarie failed to prevent 11 suspicious orders being placed on the electricity futures market via Macquarie terminals shortly after it was reprimanded by the MDP last year.

Over the last 18 months, ASIC found nine questionable market conduct matters. Seven matters relate to misreporting more than 375,000 OTC derivative transactions and two were futures dealing matters concerning the prevention and detection of suspicious trading activity. One related to withholding orders on the ASX24 market.

Macquarie's controls failed to detect many of the OTC derivatives trade reporting breaches that continued for several years.

ASIC slammed the bank in the past for staff's failure to escalate a response and the "systemic issues regarding the culture and reporting within Macquarie."

ASIC commissioner Simone Constant said: "Our intervention underscores our concern with the recurrent nature of Macquarie's failures, which were caused by ineffective supervision and weak compliance and control management."

"The additional licence conditions are a significant administrative action to ensure Macquarie comprehensively addresses ASIC's concerns. It cannot be a piece-meal or band-aid fix. Macquarie must take responsibility and put in place appropriate action to remediate the repeated failures and underlying governance and supervisory failures."

Macquarie Bank said in a statement that it "takes its role as a licensed entity extremely seriously, including the importance of ensuring the integrity of the markets in which it operates and learning from instances where compliance has been inadequate."

In addition to working constructively with ASIC on these remediation activities, Macquarie said it continues to invest in a broader range of existing programs to strengthen its systems, controls and supervisory arrangements.