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World's top financial watchdog probes FX

Friday, February 14 16:21:22

Foreign exchange benchmarks will be reviewed by the world's top financial regulator, the latest front to be opened in a global probe into allegations of price manipulation in the world's largest financial market.

The Financial Stability Board (FSB), which coordinates regulation for the Group of 20 (G20) leading economies and is chaired by Bank of England governor Mark Carney, said today it would open its own investigation.

It is the latest step in an investigation into allegations that a handful of senior traders exchanged market-sensitive information and colluded to manipulate benchmark currency rates.

The U.S. Department of Justice and Britain's Financial Conduct Authority (FCA) are among those leading the investigations into potential wrongdoing in the $5.3 trillion-a-day market.

The U.S. Federal Reserve is also involved in the probe, several sources with knowledge of the investigation have told Reuters, although the extent of that involvement is unclear.

"Recently, a number of concerns have been raised about the integrity of foreign exchange rate benchmarks," the regulatory task force for the G20 said in a statement on Friday.

"The FSB has consequently decided to incorporate an assessment of FX benchmarks into its ongoing programme of financial benchmark analysis," it added, confirming a Reuters exclusive last month.

The scale of the probe and severity of the allegations were outlined last week by FCA chief executive Martin Wheatley, who told British lawmakers that the investigation would last into next year and the allegations were "every bit as bad" as Libor.

Traders' manipulation of London Interbank Offered Rates (Libor), benchmark global interest rates, has resulted in banks shelling out $6 billion in fines and settlements.

The unfolding foreign exchange scandal has already seen more than 20 traders put on leave, suspended or fired. No charges of any kind have been brought yet.

Groups of senior traders are alleged to have shared market-sensitive information relevant for the popular WM/Reuters "fix," or London fix, which is set at 4 p.m. London time, using actual trades.

London is the hub of the global market, accounting for some 40 percent of the $5.3 trillion traded on an average day.

Most of the major banks in the industry, such as Citigroup , JP Morgan Chase and Deutsche Bank are cooperating with regulators, handing over emails and electronic chat room communications between traders.

An FSB spokeswoman told Reuters the FSB would inform G20 central bankers and finance ministers meeting in Sydney next week that the FX review was being undertaken. (Reuters)