For Forex Sake

Investigations into the forex scandal have revealed that six major global banks colluded for at least a decade in order to manipulate exchange rates – for their own gain of course. Time and again banks have proven that fines don’t deter them from doing as they please; sanctions must be stronger.

Barclays, Citibank, HSBC, JPMorgan, RBS and UBS manipulated the daily benchmark price of global currencies on the forex market by sharing information about orders from their clients. This allowed these mischievous bankers (substitute the ‘b’ for a ‘w’ if you like) to skew supply and demand in the desired direction during the window that they set the rate.

So how did this hustle take place? Oh that’s right, a bunch of lads communicated their strategies in electronic chat rooms whilst bonding over sexist and drug-related banter. One of the more prominent chat forums was called ‘The Cartel’. Uh oh. Whilst we can neither confirm nor deny our involvement in the discussions, we can reveal bits and bobs. Following a successful fix by RBS, one participant wrote “we fooking killed it right.” It wasn’t fun and games for all as an HSBC trader posted this after being left out of the cool kids’ chat: “u are uselees…how can I make free money with no fcking heads up.” Peak for you fam.

On 12th November 2014, the Financial Conduct Authority (FCA) enforced a $1.7bn fine for failing to control business practices. Just about getting up from the first hit, the Commodity Futures Trading Commission (CFTC) imposed collective fines of $1.4 billion against the same banks for attempted manipulation of, and for aiding and abetting other banks’ attempts to manipulate global foreign exchange benchmark rates – on the same day. It’s fair to say that the authorities won that round.

The fines appear to be large but are insignificant compared to the overall value of the $5.3 trillion a day forex market; there is no real threat to the long-term profitability of the banks. As we have seen with previous banking scandals (eg Libor), financial penalties only register as a slap on the wrist for these powerhouses.

Authorities are finally acting more like Roy Keane and less like Roy Hodgson in their approach. The FCA has launched innovative remedial programmes aimed at repairing trust in the banking system and the wider market. Banks are now required to review their IT systems in relation to their spot-fixing as the banks currently rely on legacy technologies that allow for the existence of dark-data silos within which manipulation occurs without notice.

The nation’s darling, George Osborne (move over Cheryl), has promised funding for further criminal investigation into rigging by the Serious Fraud Office, and reforms are expected to be swiftly introduced to ensure greater transparency, more responsibility on firms and more defined sanctions to be pushed down should similar occur.

In other fields, disingenuous firms face the loss of their licence to operate; employees face prospect of dismissal. These money manipulators need to be more accountable.

 

By Kamran Khan

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2 thoughts on “For Forex Sake

  1. James Wellington says:

    In relation to your comment regarding the fines being puny in regards to the size of the market is it not somewhat facile to say that bearing in mind that the FOREX market includes thousands upon thousands of participants from individuals to hedge funds to every day brands like unilever for instance not to mention the indirect involvement of various entities through derivatives.. To singularly lay the blame at a couple of banks doors is in my opinion ludicrous to actively shift the market in any meaningful form would require billions to be funnelled into it to be able to control the currency in question. But I digress how exactly would sanctioning them help? Aside from the problem that 3 of th biggest players there are foreign and thus untouchable as it were?

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    • thecommercialcartel says:

      Hi James,

      Apologies for the delay in getting back to you – thank you for your comment!

      I do not see it as a facile argument because as we know, this is a profitable market – money is made rapidly on this market. What I was suggesting is that where such fines are imposed, it won’t take the business in question too long to recover their losses.

      The focus of this piece is on banks involved in rigging market rates, because it is unacceptable that the biggest players (or any player) be able to collude and artificially manufacture desired results. It affects competition and legitimacy within an industry and when assessing the extent and duration of the fixes they made, it is only right that they receive a large portion of the blame.

      With regards to your question about sanctioning, the current penalties are clearly not stringent enough. I think we have to see the effects of the non-financial sanctions because banks have proven that financial penalties won’t deter them.

      The fact that some of the banks are foreign does not mean they avoid liability – there are numerous regulators in place, given the fact that the actual forex market doesn’t have a ‘location’, so to speak. Authorities range from the Financial Conduct Authority (UK) to the Federal Reserve Board (USA).

      Regards,

      TCC

      Like

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