Banks Get Caught in Bigger Foreign Exchange Probes

A currency trader checking rates on computer monitors in a Tokyo foreign exchange company in 2013. (Photo: Koji Sasahara, AP)
A currency trader checking rates on computer monitors in a Tokyo foreign exchange company in 2013.
(Photo: Koji Sasahara, AP)

New expansions of the global investigations and lawsuits targeting suspected foreign-exchange market manipulation are raising the financial and legal risks facing major banks.

Switzerland’s competition commission this week became the first public regulator to confirm evidence of suspected rigging, while authorities in Hong Kong and Great Britain disclosed new moves in their investigations.

Separately, an amended U.S. federal court lawsuit filed by municipal retirement systems and financial funds added new allegations against 12 major banks whose traders are suspected of colluding to boost their own profits by rigging currency rates.

The developments prompt comparisons with the separate investigation of Libor, the London Interbank Offered Rate used to set rates on trillions of dollars in mortgages, loans and credit cards. U.S. and British authorities so far have fined four global banks and the world’s largest inter-dealer broker more than $3.6 billion collectively for rigging the financial benchmark.

“It’s turning into something like Libor in that there are tons of major banks that are being drawn into it, and it looks bad for them and there’s a significant chance they’ll have to pay a penalty,” said Carol Osler, a Brandeis University professor who researches the foreign-exchange market.

The market averages $5.3 trillion in average daily trading worldwide, including $1.3 billion in the U.S.

Unlike buying or selling stocks and commodities, foreign-exchange traders have operated under few if any regulatory restrictions. Some are suspected of having used online chat rooms or instant-messaging exchanges where they nicknamed themselves as members of “the bandits’ club” and the “cartel” to collude in pushing currency rates up or down in ways that benefited their own trading.

Traders are also suspected of placing their own transactions ahead of trades requested by clients. The tactic, known as front-running, was “considered common” in foreign-exchange trading even though it has long been “criminal in other markets,” said Osler.

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Source: USA Today | Kevin McCoy