Forex Probe Continues for Banks - Analyst Blog

On Tuesday, regulators in Hong Kong and New Zealand jumped the bandwagon of the widespread global investigation into the alleged foreign exchange rates manipulation. The regulators in both countries have initiated currency probe into the involvement of local banks in the manipulation.

This move followed Switzerland's competition commission Wettbewerbskommission (WEKO)'s public revelation of the involvement of 8 banking stalwarts in foreign exchange rates manipulation, a day before. These banks include UBS AG UBS, Credit Suisse Group AG CS, Julius Baer and Zurcher Kantonalbank, JPMorgan Chase & Co. JPM, Citigroup Inc. C, Barclays PLC BCS and The Royal Bank of Scotland Group plc RBS.

Most of these banks have refrained from issuing comments, while some have agreed to co-operate with regulators. Further, UK's financial regulator is scrutinizing the internal controls of investment banks for averting traders from rigging benchmarks.

Notably, Swiss authorities became the foremost regulatory body to initiate a formal investigation into foreign exchange rate rigging. However, financial regulators in U.S., Europe and Asia are still investigating the role of the banks in the manipulation of currency rates. The foreign-exchange rates aid fund managers to assess the apparent day-to-day value of investments.

Previously, the Hong Kong Monetary Authority (HKMA) was interacting with regulators around the world, gathering information and enquiring with the local banks. Now, the regulator has demanded an evaluation of banks' forex businesses in Hong Kong by independent lawyers or counselors. However, the authority will formally initiate an investigation, once the evidence related to manipulation becomes visible. New Zealand's Commerce Commission is also actively investigating the matter.

Manipulation of currency rates by major financial institutions triggered thorough investigations by regulatory bodies across Europe, Asia and America. Such investigations have cost several major global banks billions of dollars in settlements. Alongside, we apprehend such scandals to dent the financials of these banks over the long term.

Therefore, burdened under the pressure of such investigations, banks have terminated a number of traders along with the closure of electronic chat rooms – the mode of communication between various banks. Moreover, such probes are negatively impacting the markets as evident from the downturn in foreign exchange trading volumes in recent months.

Regulatory authorities are investigating scandals related to the heightening foreign exchange rate fixing and are determined to put forward a landmark judgment to terminate such shrewd practices in the future, bring justice to the sufferers and punish the wrongdoers. While settlement of such issues will put to rest a long-drawn investigation and bring reprieve to the banks, this comes as a huge blow to their financials.