The Australian Securities and Investments Commission on Wednesday announced it reached a deal with Westpac and ANZ to set up so-called 'enforceable undertakings' that will commit the banks to good behaviour after problems were discovered in their wholesale foreign exchange businesses.

An ASIC investigation into a five year period between 2008 and 2013 bound both banks failed to have systems strong enough to spot inappropriate conduct identified including the disclosure of confidential client trading information to external traders through the use of code names.

"The foreign exchange market is a systemically important market that depends on all participants acting with integrity and fairness. ASIC is committed to ensuring that major financial institutions have the systems in place to ensure that financial services are provided fairly, honestly and efficiently," said ASIC Commissioner Cathie Armour.

Westpac will also donate $3 million to support the "financial capability of vulnerable people including women experiencing family violence, the elderly and youth at risk" while ANZ will pay $3 million to Financial Literacy Australia.

Under similar deals struck with the Commonwealth Bank of Australia and the National Australia Bank, those banks donated $2.5 million each to fund financial literacy projects in Australia.

"We have taken responsibility and we apologise," said ANZ chief risk officer Nigel Williams.

"There has been a cultural and compliance step change in our Markets business since 2013. While we are always looking at ways to strengthen our compliance environment, there have been major improvements to compliance, training and monitoring systems in recent years which will go a long way toward ensuring this does not happen again."

Lyn Cobley???, chief executive of Westpac Institutional Bank, said the bank had improved controls in its foreign exchange business

"We look forward to continuing this process as we fulfil our commitments set out in the enforceable undertaking," she said.

It is understood Westpac has already taken steps to tighten use of chat rooms and other electronic communications as well as changing the trading systems and improving supervision.

Under the deal with ASIC, Westpac and ANZ will improve their systems and supervision of employees in the foreign exchange business to be overseen by an independent consultant appointed by ASIC.

The deal also requires both banks to give ASIC an annual formal assurance that its systems are up to scratch and those systems will be subject to an annual review by the external expert for three years.

The ASIC investigation into Westpac found:

• Westpac employees disclosed confidential details of pending client orders to external traders in the spot FX market including the identification of the customer through the use of code names;
• On at least one occasion, a Westpac employee acted together with an external party to share confidential information and enter and cancel offers on a trading platform other than in the ordinary course of hedging or market making;
• On several occasions, Westpac employees inappropriately received and/or disclosed confidential information about Westpac's or another institution's orders in the course of fix order management and execution;
• On one occasion, a Westpac employee altered a proprietary position prior to the fix upon receipt of confidential and potentially material information in relation to other institutional fix orders; and
• On at least one occasion, a Westpac employee inappropriately disclosed confidential Westpac fix order information to an external party to inform their joint personal account trading strategy.

The investigation into ANZ found:

• On a number of occasions, ANZ employees disclosed specific confidential details of pending customer orders to external third parties including the identification of the customer through the use of code names;
• On at least one occasion, a former ANZ spot FX trader exchanged with an external market participant confidential and potentially material information about other institutions' customer flow or proprietary positions, including information concerning likely directional flow at the WM/R London 4pm fix, which was potentially inconsistent with a proper approach to market making or hedging. Following the receipt of such information, the ANZ trader acquired a proprietary position in a currency prior to the WM/R London 4pm fix; and
• On a number of occasions, ANZ employees who were responsible for managing particular client orders traded in a manner which was potentially inconsistent with a proper approach to market making or hedging.