* Asset managers to accept proposals charging for orders
* Response to FSB paper next week should speed work on reform
* Opposition to moving away from existing fixings
* Banks, funds anxious to move on from scandal
By Patrick Graham and Huw Jones
LONDON, Aug 8 (Reuters) - Asset managers will agree to pay more for currency "fixing" services when they respond later this month to proposals by global regulators for reforms of foreign exchange benchmarks, industry sources said on Friday.
Almost two years after some fund managers raised concern over how banks dealt with their orders to exchange currency at daily fixings, regulators have identified a key source of tension in the system: the zero fee banks charge their biggest clients for such orders.
The Financial Stability Board's consultation paper on reform, written chiefly by the Bank of England's executive director for regulation, Paul Fisher, recommended that funds pay banks either a straight fee or a "spread" premium to the fixing rate for orders executed.
That reflects complaints by banks that the orders they promise to execute at the benchmark rates are a loss-leader and put pressure on traders to find creative ways to offset the risk involved.
"There is acceptance that asset managers will have to pay a broker charge but that it should be a minimum charge to cover costs of trading and not some wheeze to generate income for banks," one official from the European asset management industry told Reuters.
So far, 40 bank traders have been fired, suspended or put on leave in a row over alleged rigging of the currency benchmarks, although no-one has been formally accused and regulators are yet to publish any clear evidence of misconduct.
Senior managers at two other European asset managers told Reuters the sector was resigned to paying more towards the system, but that it must come in exchange for more transparency and certainty that the system will be clean going forward.
"They may be a trade off between the integrity of the fixing and paying a little bit," said one fund manager who executes around $500 billion in currency deals annually, speaking on condition of anonymity.
"Asset managers who trade pretty well get FX costs of around 10 basis points. If my tracking error on my portfolio as a whole was a couple of basis points then that would probably be ok."
In line with feedback from banks over the past couple of months, one of the sources said it was clear that the industry wanted to continue with the existing fixings, although it was open to some of the other proposals in the FSB document.
Specifically, he said there was likely to be acceptance of some widening of the fixing window and of the idea of a new system that seeks to match off and execute fixing orders in isolation from speculative traders like hedge funds and banks' spot desks.
The benchmark at the centre of the market-rigging investigations is the 4 p.m. WM/Reuters currency fix in London, which uses a 60-second window to set key exchange rates. That could be expanded to 15 minutes on either side.
The London fix relates to several exchange rates and is compiled using data from Thomson Reuters and other providers and calculated by WM, a unit of State Street Corp STT.N. Thomson Reuters is the parent company of Reuters News, which is not involved in the fixing process.
A number of bank officials have told Reuters that the proposals for an independent matching utility may founder on the difficulty of managing the risk of orders that then have to be executed in the broader market. They also say it would be likely to cost more than the existing processes. (Editing by Larry King)