After Libor, the market has come under intense scrutiny and faced allegations of manipulation. It has been alleged that traders at major banks shared information in order to manipulate benchmark rates. Around the world, than 40 dealers have been sacked or suspended from global banks following claims of rigging abuse.
London is the biggest market in global foreign exchange with the largest proportion of daily trades.
The UK’s Financial Conduct Authority (FCA) has already launched an investigation into foreign exchange manipulation allegations along side the US Department of Justice.
In February, the FSB, which is chaired by the Governor of the Bank of England Mark Carney, said it was assessing foreign exchange benchmarks as part of its on-going probe of short-term interest rate benchmarks it was asked to conduct by the G20 last year. 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.
Last week Mr Carney hinted that tougher rules were on the way. “Merely prosecuting the guilty to the full extent of the law will not be sufficient to address the issues raised,” the Governor said in a speech. “Authorities and market participants must also act to re-create fair and effective markets.”
Martin Wheatley, the boss of the FCA, has warned that, on the basis of the allegations, the rigging problem could be “every bit as bad as Libor.”
In April George Osborne told the Treasury Select Committee that the allegations of foreign exchange manipulation were “potentially very serious”. He added: “The Treasury has an overall responsibility for the integrity of Britain’s financial markets and I suspect this is something we are going to be hearing more about in the next few years.”
A spokesman for the Treasury said: “A key part of the government’s long term plan is building stronger and safer banks that can do more to support Britain’s consumers and businesses. Ensuring confidence in the fairness and effectiveness of financial markets is central to this, which is why we’ve taken action to reform LIBOR, and why we’re now using the lessons we have learned here to inform and shape the important ongoing global debate on benchmark reform.”