The largest banks in the world have manipulated for at least ten years the benchmark foreign-exchange rates on a market with daily transactions worth $4,700 billion, according to a Bloomberg investigation. Following the investigation, the European Union authorities have asked the United Kingdom to look into the problem.
Bank employees were trading on their own before the execution of client orders when they believed that the trades will change the reference prices and manipulated WM/Reuters rates by executing the transaction before or during the interval of 60 seconds in which the benchmarks are established, say five current and former traders. The controversial practices have affected the value of funds, derivatives and all investments.
Informed observers have long warned that the forex market, the largest in the financial system, has all the characteristics of a casino.
Financial Conduct Authority, the body that supervise the financial markets in the UK, considers opening an investigation into possible manipulation of the currency rates. EU officials also requested an investigation on this matter.
“They need to get to the bottom of it. It’s quite upsetting we have got another bad-news story. It’s time we managed to restore the reputation of our banks,” said Sharon Bowles MEP, Chairman of the Economic and Monetary Affairs and member of the Liberal Democrat party in the UK.
Financial Conduct Authority, a quasi-governmental institution, was created in April as a successor of Financial Services Authority to oversee markets and act as prosecutor in cases of financial crimes. Financial Services Authority was disbanded amid British MPs’ criticism that it failed to prevent the financial system crisis in which the government has intervened to save Northern Rock, RBS and Lloyds banks.
Tensions between the UK and EU partners for the supervision of the financial industry have intensified after three banks were fined $2.5 billion for manipulating LIBOR rates set in London, one of the largest financial centers in Europe. The European Commission considers place a Paris authority in charge with LIBOR surveillance.
Traders surveyed by Bloomberg declined to reveal the identity of the banks involved in manipulative practices and did not specifically accused the four largest banks in the forex market. Spokesmen for Deutsche Bank, Citigroup, Barclays and UBS declined to comment.
EU regulators this summer will present plans for a reference framework for benchmarks such as WM/Reuters rates and LIBOR interest rates, according to Chantal Hughes, spokesman for the Financial Services Commissioner Michael Barnier. The European Commission proposed last year to make it a crime the handling of financial market indicators.
Hughes wrote in an e-mail that WM/Reuters rate manipulation, “following on from the other recent allegations and investigations into the manipulation of oil, biofuel, gas as well as interest-rate benchmarks, once again highlight the need for a broad-based regulatory regime. Benchmarks share similar vulnerabilities.”
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