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The CityUK Calling for Forex Manipulation Action
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Financial sector lobbying group The CityUK has spoken out about the allegations that bank workers were colluding to rig the $5.3 trillion per day foreign exchange industry. Chris Cummings, the Chief Executive of The CityUK, has called for regulators to act promptly to investigate and resolve the issue.
Cummings told Reuters that the sooner the scandal is resolved, the better the situation will be for London. The London foreign exchange market accounts for around 40% of the global currency market. Cummings explained that he felt it was vital that any workers who were found to have broken the law be subject to punishment under the full sanctions of UK laws.?
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Profitable Rate Manipulation
The allegations surround something called the “London fix”, which is a rate that is set daily at 4PM London Time. City workers are alleged to have colluded to schedule trades to manipulate the rate that is set at that time of day, affecting the price of trillions of dollars worth of transactions and the finances of investors, big companies and central banks. Manipulating the fix is a potentially hugely lucrative move for any bankers involved.
Today, most individuals trade using spot rates via online platforms such as iforex, but there are still a lot of trades carried out through the bigger banks. Cummings wants to make sure that London’s reputation as one of the world’s leading financial centres is maintained.
Mark Carney Faces Questions
Cummings call for an investigation came as Mark Carney, the Bank of England Governor, appeared before the treasury select committee to talk about the bank’s knowledge of the rigging, and whether it could have acted earlier to stop it. Representatives of the treasury select committee have expressed concern that the BoE may have known about the possibility that the London Fix was open to manipulation as early as 2006. There are mentions of possible manipulation in minutes from meetings from 2008, but Carney states that there was not sufficient evidence to justify taking action at that time. Carney has not held the position of Governor for long, and has already faced some difficult tests.
Restoring Investor Faith
The Forex manipulation scandal has been compared to the Libor scandal, which involved manipulating interbank rates. In response to the scandal, the International Swaps and Derivatives Association reviewed the ISDAfix, and made several changes to the benchmark to ensure that it was more robust. The ISDA does not have any direct control over setting the Libor, but wants to do everything it can to ensure that the rate is set correctly. The FSB is expected to publish its findings in the summer.
The recent scandals have shattered investor faith in benchmarks and indexes in general. The Index Industry Association has expressed concern that the delays in the investigation of the Libor scandal, and the slow movement regarding the forex fix manipulation investigation, are holding back the process of restoring investor confidence in the markets.