By Huw Jones
LONDON Nov 19 The first set of rules for the
unregulated multi-trillion dollar foreign currency market will
be considered after the completion of probes into possible
manipulation, a British regulator said on Tuesday.
The Financial Conduct Authority (FCA), along with watchdogs
from the United States and Asia, is investigating if traders
tried to rig foreign exchange benchmarks, such as the so-called
London fixing at 4 p.m. each day, which is the nearest thing to
a closing price in the 24-hour, self-regulated market.
Barclays, UBS and Deutsche Bank
are cooperating with regulators who are investigating
the matter, while Royal Bank of Scotland has said it is
reviewing its forex processes.
Inquiries into the forex market are the latest probe into
possible market manipulation by leading banks, coming after
hefty fines were imposed on several lenders for rigging the
London interbank offered rate, or Libor, a widely used interest
FCA Chief Executive Martin Wheatley said the watchdog was
gathering "facts and evidence" about what may have happened in
"If that evidence suggests a more fundamental problem, then
you've always got a set of responses," Wheatley told reporters
on the sidelines of an FCA conference.
"One response says you have to enforce against poor
behaviour, and the other response is to look at the conditions
that allowed that behaviour to exist. That is what we did with
Libor and came up with a set of structural changes," Wheatley
"Frankly it's an unregulated market and that would be a big
policy change for global regulators to decide that forex needed
to be a regulated market. The truth is we are at a very early
stage and a long way off before we can make any conclusions."
Currently Libor is the only widely used financial benchmark
to be directly regulated by the FCA in Britain, following a law
in April which also made rigging of Libor a criminal offence.
The watchdog has, however, begun looking beyond this
regulatory "perimeter" to other types of benchmarks.
With 40 percent of global forex trading taking place in
London, the FCA has already begun scrutinising how benchmarks
based on that market are being compiled, an FCA official said.
And its inquiries go beyond that area.
Those who administer oil, gold and other major, non-
interest rate-related benchmarks, as well as those in forex,
have been asked to assess by July next year how they comply with
new global regulatory principles governing all types of indexes
following the Libor scandal.
The FCA has also asked banks which provide quotes for a
range of benchmarks, including forex, to "run a rule" over their
submissions process and show how they have applied lessons from
the Libor scandal, the FCA official said.
The key foreign exchange rates, WM/Reuters, are compiled
using data from Thomson Reuters and other providers,
and are calculated by WM, a unit of State Street Corp.
Thomson Reuters is the parent company of Reuters News, which is
not involved in the fixing process.
The WM/Reuters rate set at 4 p.m. London time is considered
the benchmark by many companies and investors because of the
large amount of FX trading which is done in London.