INTERVIEW-UK could see criminal probe in FX row -industry body

LONDON Fri Feb 7, 2014 8:21am EST

LONDON Feb 7 (Reuters) - Britain can be expected shortly to begin criminal investigations into the alleged rigging of currency markets if comments by its chief market regulator this week are taken at face value, an industry umbrella group said on Friday.

Regulators in the United States, Britain, Europe and Asia are looking into whether traders at around 15 of the world's biggest banks colluded to use client order information improperly to influence the daily "fixes" seen as benchmark rates in the $5.3 trillion-a-day market.

After a new volley of dismissals at major banks in London and New York, the ACI, a broad financial industry body which groups traders and participants in foreign exchange markets, said the priority was for banks and officials to take action as fast as possible to root out wrongdoers.

But in a robust defence of how banks were dealing with the row, it also said that the investigation will probably now move to include asset management firms and that banks' general rules were themselves not in question.

"The FX market is the largest market, and just like the equity market or the bond market you do get individuals who misbehave," said David Woolcock, deputy head of the ACI's foreign exchange committee.

"You can get people who participate in insider trading and who commit fraud but these are matters for individuals who have no place in our markets and should be rooted out. If some individuals are misbehaving and engaging in criminal activity, let's treat it as criminal activity and move on."

Investigations into charges that senior dealers colluded to rig rates at the fixings are now well-advanced in several jurisdictions including the United States and Switzerland.

Martin Wheatley, the head of Britain's financial regulator FCA, said this week that its probe was set to stretch into next year and that the charges were "every bit as bad" as the Libor interest rate-fixing scandal which cost banks $6 billion in fines.

"Wheatley is quite right when saying that the allegations could be as serious as the allegations were regarding Libor although they are of a different nature," Woolcock said.

"The only definite in all this is that we have allegations mainly in the press and a series of investigations that have given no concrete sign that a smoking gun has been found. If Wheatley is saying that the allegations are as serious then I suspect that we will see criminal investigations very shortly given the nature of the actual allegations."

Any criminal investigation could run in parallel with the FCA probe, which is expected to continue into 2015.

DEFENCE

So far, the U.S. investigation into the affair has asked more than a dozen banks for documents, including Barclays , Credit Suisse Deutsche Bank, Goldman Sachs, Lloyds Banking Group, Royal Bank of Scotland, Societe Generale and Standard Chartered.

Woolcock welcomed moves by the European Union to tighten up regulations dealing with insider trading. But he stressed that it was for now unclear why dealers have been laid off or suspended.

Groups of senior traders are alleged to have shared market-sensitive information on the benchmark known as "the London fix" on chatrooms with names like "The Cartel" and "The Bandits' Club".

"If some of these dismissals are for inappropriate comments in chatrooms, until we know what the comment is it is hard to say anything more," said Woolcock.

"There is a difference between breaking something that is in your contract of employment and attendant handbook say regarding external communication and that might not necessarily in and of itself involve engaging in unethical behaviour in the market."

Banks have consistently avoided linking the sackings and suspensions to the FX probe, but a number of sources have said the moves are the result of internal investigations.

Woolcock said ACI members had reported volumes around the fixings, used to price trillions of dollars of investments and deals, had fallen, raising the question of why asset managers had earlier been focussing so much of their business around one point in the trading day.

Most of the world's currency market trades between banks, with the top 10 accounting for over three quarters of the daily flow, according to the last Euromoney poll, but much of the trading is done on behalf of asset managers, funds and firms.

"It is probable that the focus of this story may now move on to the buy side. Asset and Fund Managers have been keeping quiet on this issue and there are clearly questions to answer," Woolcock said.

"There may have been pressure on the banks from the asset managers to take on large orders and they went along with it. What I do not understand is why large asset managers are placing very large orders to be transacted in a 60-second window, this would not usually happen in other markets they operate in."

The ACI, which counts some 13,000 financial market professional members in more than 60 countries including the world's biggest banks, asset managers and brokerage houses, has become the traditional forum for discussing trading issues in the foreign exchange market.

Its code of conduct sets standards for behaviour by participants in what has always been a largely self-regulated market and Woolcock said there was no case as yet for moving away from that model.

"The problem with regulation is can you actually standardise it across the entire market, especially as global a market as FX," he said.

"Self-regulation and following best practice is the best regulation as long as its backed up with appropriate legal systems and regulations in general about what happens when there is a malfeasance." (Additional reporting by Clare Hutchison; Editing by Toby Chopra)

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