Macquarie Bank is under a lot of questioning for grossly misreporting up to hundreds of thousands of dollars in transactions. This scandal may be the tip of the iceberg in an industry that has long been plagued by a culture of deception. In September 2024, the Australian Securities and Investments Commission (ASIC) penalised the bank with an unprecedented fine of $4.995 million. This penalty stemmed from the bank’s inability to stop manipulative orders from being entered on the electricity futures market. The wrongdoing is related to a derivatives trading desk that Henry Jennings oversaw in the late 1990s. Now investigations are ongoing to tackle wider spent issues in Australia’s financial services sector.
The Royal Commission, chaired by Commissioner Kenneth Hayne, had earlier investigated the financial, banking and superannuation sectors for bad behaviour. These potential environmental impacts particularly caught the attention of industry experts alarmed by the findings. Their concern is that the problems identified by Macquarie Bank are a sign of deeper rot across the broader finance sector. Dr. Mark Humphery-Jenner, a leading expert on financial regulation, expressed his misgivings. He cautioned that there is a much larger risk of illicit transactions going undetected.
ASIC’s Record Fine and Its Implications
In late September 2024, ASIC launched an unprecedented penalty against Macquarie Bank. What they found was that the bank had let through 11 suspicious orders on the electricity futures market. Simone Constant, an ASIC representative, stated, “We were particularly disappointed that Macquarie failed to prevent 11 suspicious orders being placed on the electricity futures market via Macquarie terminals shortly after ASIC had referred similar failures to the Markets Disciplinary Panel.”
Constant drives home the point that this incident exemplifies a widespread practice of systemic and industry-wide Macquarie Bank flubs. He cited bad oversight, lack of compliance and control management as root causes. “Our intervention underscores our concern with the recurrent nature of Macquarie’s failures,” she noted.
Following these incidents, Macquarie Bank already has conceded that as a licensed entity it is not immune from scrutiny. A spokesperson stated, “Macquarie Bank 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.”
The Broader Picture of Financial Misconduct
The revelations surrounding Macquarie Bank’s practices have raised alarms about potential systemic issues within Australia’s finance industry. Here’s an important thing to consider, from investor and writer Danielle Ecuyer. She’s convinced that it’s human greed that leads to most of these malfeasances. “The motivation of greed—that’s humanity, that’s the way it works,” she stated.
Ecuyer further explained that financial professionals are creative and innovative by nature and don’t deliberately set out to break the rules. “In the minds of the people doing it, it’s probably not consciously ‘we’re going out to break the system’ or be bad but financial people are, by their nature, innovative,” she observed.
Dr. Humphery-Jenner elucidated these concerns. He posited that lack of oversight is what has enabled these predatory and discriminatory practices to run rampant across the industry. He cautioned against painting the issue as only an attack on Macquarie Bank. A self-reporting system is inherently vulnerable to undiscovered or unreported misconduct lurking just beneath the surface. “How large that is—potentially there could be more illicit or illegal transactions underneath that iceberg,” he remarked.
Legislative Responses and Future Outlook
In response to ongoing concerns about financial misconduct, the Albanese government implemented the Financial Accountability Regime (FAR) in September 2023. This legislation will strengthen accountability among financial institutions and improve compliance with critical regulations.
Despite these good faith efforts, experts such as Ecuyer are dubious that these types of steps will go far enough to discourage bad behavior. “I think it’s a case of regulators constantly chasing their tails,” she said. Many of our financial community friends agree with this point. They fear that bad behavior will continue to go unchecked without rigorous enforcement and vigilant oversight.
Henry Jennings, the former head of Macquarie Bank’s OTC derivatives trading desk, further explained how OTC derivatives work. “If the price went to $20 you’d still be locked in at $10, and anyone who bought that contract from you at [the] $10 level would then benefit from the upside in that electricity price rise,” he explained. This illustrates how complicated financial instruments can too often hide the ball on material risk and make fraud easier.
