REUTERS SUMMIT-UK FCA could intervene if fewer set commodity prices

Tue Apr 29, 2014 12:55pm EDT

* Deutsche's resignation leaves four banks to set gold benchmark; two for silver

* FCA 'nervous' to stipulate participant numbers for benchmarks

* Could step in if there is a risk of 'market dislocation'

By Clara Denina and Susan Thomas

LONDON, April 29 (Reuters) - Britain's financial watchdog could intervene if there are too few participants to set commodity benchmarks including gold and silver, a senior official at the Financial Conduct Authority (FCA) said.

U.S. investors and traders have filed almost 20 antitrust lawsuits against the five banks involved in the London gold fix, accusing them of colluding to manipulate the bullion price.

One of them, Deutsche Bank, resigned from the gold and silver fix tables on Tuesday, just three months after putting its seat up for sale, after failing to find a buyer.

Sources told Reuters the lawsuits had deterred potential buyers.

Deutsche's resignation leaves Barclays, HSBC , Bank of Nova Scotia and Societe Generale to set the gold benchmark.

Just HSBC and Bank of Nova Scotia remain to set the silver price benchmark.

FCA head of enforcement and financial crime Tracey McDermott said while the regulator would be nervous about stipulating the number of participants needed to set benchmarks on commodities, including for gold and silver, it could step in if there was a threat to the market.

"These (benchmarks) are things that exist for the benefit of the market, so the market should be looking for market-based solutions to make sure it is still viable," McDermott told the Reuters Financial Regulation Summit in London.

"But if there is a risk of dislocation because people are withdrawing and we think that breaches or is a risk to our objectives then we would set that as one of our activities but it is not entirely straightforward."

The gold fix - a benchmark widely used across the industry - is set twice a day by five banks that get together over the telephone to work out a standard price for the metal based on transactions between their clients.

MORE QUESTIONS

Banks have come under increasing scrutiny by regulators in Europe and the United States after the London Interbank Offered Rate (Libor) was rigged by British banks.

Deutsche Bank and some of its peers have taken a battering over a series of scandals and inquiries regarding manipulation of interest rates and foreign exchange.

This has also raised questions about the other four banks that currently participate in the gold fix.

The FCA has visited the offices of Societe Generale, this year's chair at the London gold fix table, to observe the process and gather information, two sources with knowledge of the matter said.

The regulator is planning to speak "to the others that are involved in exactly the same fixing process", one of the sources said.

McDermott said on Monday that the FCA visited firms frequently in the normal course of business and a visit was not necessarily an indication of wrongdoing.

"But benchmarks are clearly something where we are expecting to see quite a lot of focus on in the next couple of years, looking ...at how people adopted the IOSCO principles, and are they controlling these risks going forward."

After the Libor scandal in 2012, the International Organisation of Securities Commissions (IOSCO) - a global umbrella group for market regulators - detailed a series of principles with which any institution providing a financial benchmark should comply. It set a deadline of July 2014.

The Gold Fixing Company, which represents banks involved in price settlement, is undertaking a review to ensure the gold fix complies with those benchmark principles.(For other news from Reuters Financial Regulation Summit, click here) (Editing by Veronica Brown and William Hardy)

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