April 28, 2014 / 3:11 PM / 6 years ago

FX dealers in London can trade trillions, without being registered

LONDON (Reuters) - Three London-based traders suspended or fired as part of a global investigation into alleged collusion and price-rigging in the foreign exchange market were not registered by Britain’s financial market watchdog, revealing inconsistencies in the oversight of the world’s biggest marketplace, Reuters analysis of the Financial Conduct Authority’s filings has shown.

This highlights one of the difficulties in monitoring large, cross-border, over-the-counter markets, such as foreign exchange which is the world’s largest financial market yet also its least-regulated - a “regulatory hole”, according to Tracy McDermott, director of enforcement at the FCA.

These gaps are not apparent in markets such as stocks, which are traded on more tightly monitored and regulated exchanges.

“Spot FX trading isn’t a regulated activity,” McDermott told the Reuters Global Regulation Summit on Monday.

Any change to this state of affairs is up to the government, not the FCA, she added.

London is the centre of the $5.3 trillion-a-day global currency market, and the top traders can earn (or lose) their banks tens of millions.

Highlighting the unregulated nature of the world’s largest marketplace, they can do that without necessarily being registered or approved by the FCA.

Three of the 17 London-based FX operatives suspended or fired by their banks recently as the investigation by regulators around the world has gathered pace were not registered or approved by the FCA.

Of those three, one was Rohan Ramchandani, formerly of Citi (C.N), who the bank says was fired in January as head of European spot trading. He effectively oversaw the trading of hundreds of billions of dollars a week, trillions a year. Citi did not say why he was fired and the trader could not be reached for comment.


That traders responsible for such sums can operate without being registered has come as a surprise to some observers.

“It seems pretty stunning that individuals who can enter an institution into a contractual deal worth billions of pounds - even if under instructions from other, regulated people - can do so without formal recognition by the regulator,” said Mark Garnier, a Conservative lawmaker and member of parliament’s Treasury Select Committee.

The other two traders are Paul Nash and Julian Munson at Royal Bank of Scotland (RBS.L), both spot FX traders who were suspended in October last year.

Citi and RBS both declined to comment. The two traders could not be reached for comment.

Citi is the world’s second largest currency trading institution, seeing some 15 percent of the global market, according to Euromoney magazine. RBS is the seventh largest, according to the poll, with almost 6 percent of the daily flow.

In terms of potential sanction for an individual, the only real difference of not being FCA-approved is monetary.

“If you are not an approved person we don’t currently have the ability to fine you,” McDermott said.

“You don’t have to have been approved in order to be banned. We do have the ability to investigate you and we do have the ability to prohibit you, to ban you from the industry,” she said.

More than 30 FX operatives at many of the world’s biggest commercial banks have been placed on leave, suspended or fired as the investigation has spread. An unnamed employee at the Bank of England has been suspended too.

The probe centers on activity surrounding the key foreign exchange benchmark, known as the WM/Reuters fix, which relates to several exchange rates including the euro, sterling, Swiss franc and yen set daily in London.

These are compiled using data from Thomson Reuters (TRI.TO) and other providers, and are calculated by WM Company, a unit of State Street Corp (STT.N), and are important because they are used as reference rates for trillions of dollars worth of investments, trade and corporate deals around the world.

WM Company administers the WM/Reuters Service. Thomson Reuters is a primary source of rates to WM, to which WM applies its methodology and calculates the benchmark.

Thomson Reuters is one of the various distributors of the rate. Thomson Reuters is the parent company of Reuters News, which is not involved in the fixing process.

Reporting by Jamie McGeever; Editing by Giles Elgood

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