Tightening the screws.
Chancellor of the Exchequer George Osborne is cracking down on market abuse with his proposals to make the manipulation of foreign exchange, fixed income and commodities benchmarks a criminal offence in order to strengthen London’s status as an international financial hub.
Minouche Shafik (left), the new Bank of England deputy governor for markets and banking, will be leading the assessment along with Martin Wheatley, Financial Conduct Authority head and Charles Roxburgh, director-general, financial services at the Treasury. A recommendation will be made in the autumn on broadening the legislation the government implemented to clamp down on Libor to cover other benchmarks.
As part of the changes, the government plans to widen the market abuse regime to include foreign exchange and commodities. It currently only covers insider dealing and market manipulation related to securities. It will consider the perimeter of regulation, the role of industry standards, and any need for further supervisory resources. The certification regime is also expected to be extended to include foreign lenders with branches in the UK.
Separately, the Financial Stability Board, which is chaired by the Governor of the Bank of England Mark Carney, is also assessing foreign exchange benchmarks as part of its on-going probe of short-term interest rate benchmarks for the G20. The FSB set up a sub-group to lead the investigation which is co-chaired by Paul Fisher, director for markets at the Bank of England.
Foreign exchange is a global market that is integral to the flow of global business and commerce, its reputation and integrity has been tainted in recent month. London is at the heart of the global FX system and it is good to see the UK lead on reform where it is needed. Action taken here will have a global impact. Marshall Bailey, ACI
The $3 tn daily FX market has been rocked by several manipulation scandals. It has been alleged that traders at major banks shared information in order to manipulate benchmark rates. Over 40 dealers across the globe have been sacked or suspended from international banks following claims of rigging abuse.
The UK’s Financial Conduct Authority (FCA) has already launched an investigation into foreign exchange manipulation allegations alongside the US Department of Justice. London boasts the largest market in global foreign exchange with the largest proportion of daily trades.
Reforms are welcome by industry trade groups, as Marshall Bailey, President, ACI – The Financial Markets Association, noted, “George Osborne’s leadership is very welcome and this is the right direction to restore the reputation of the FX market. This will do much to reassure markets, investors and the public. The FX market must evolve and learn the lessons from recent events.”
He adds that while “foreign exchange is a global market that is integral to the flow of global business and commerce, its reputation and integrity has been tainted in recent months. London is at the heart of the global FX system and it is good to see the UK lead on reform where it is needed. Action taken here will have a global impact. While the market’s structure is broadly very effective and well designed, we have a duty to the global financial system to ensure we repair where needed.”
©BestExecution 2014
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