Global financial watchdog calls for FX fix reforms, urges banks to clean up

Tue Jul 15, 2014 9:11am EDT
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By Patrick Graham and Jamie McGeever

LONDON (Reuters) - The world's top financial regulator on Tuesday urged deep-rooted change to how currency benchmarks are set, encouraging market players to tighten up their governance, practices and controls rather than imposing stringent new regulation.

The proposals come in response to allegations being investigated by regulators that dealers at major banks colluded and manipulated key reference rates in the $5.3 trillion-a-day market, the world's biggest and least-regulated.

At the center of the investigations is activity around the 4 p.m. currency fix in London, a 60-second window where key exchange rates are set. These prices are used as reference rates for trillions of dollars of investment and trade globally.

The Financial Stability Board, based in Basel in Switzerland, said it had no access to any evidence or knowledge of any details of the investigations.

Its report included a request for views on a number of recommendations, which include changes to market infrastructure, systems and how the benchmark is calculated.

The changes that have been proposed go deeper than many in the banking sector had expected just weeks ago. But they stop short of calling for outright replacement of the existing fix or any sort of direct regulation - although that could be "revisited".

"We have consistently argued it is not the fix that is broken, but rather it is the manner in which it is used by certain market participants that must be scrutinized," said Marshall Bailey, president of dealer association the ACI.

"In all cases in markets, ultimately it comes down to the behavior of individual market participants, and the ability of their supervisors to enforce high standards."   Continued...

A picture illustration of  U.S. dollar, Swiss Franc, British pound and Euro bank notes, taken in Warsaw January 26, 2011.  REUTERS/Kacper Pempel