The integrity of foreign exchange rate benchmarks has been called into question after the City regulator launched an investigation into potential manipulative trades in the currency markets.
The new scrutiny of the foreign exchange markets, where £3tn changes hands every day, by the Financial Conduct Authority is the latest investigation into benchmarks following the Libor scandal last year and the investigation into gas prices.
It comes as the FCA and regulators in other countries continue an analysis of the hundreds of benchmarks used in financial markets around the world and in the next six weeks are expected to publish tougher guidelines for cleaning up the benchmarks.
The FCA investigation into currency trading became apparent after Bloomberg reported allegations that traders at major banks were putting in client orders ahead of a 60-second window when benchmarks run by WM/Reuters – and used by fund managers to value their investments – are set.
“The FCA is aware of these allegations and has been speaking to the relevant parties. However, we can’t comment further at this time,” an FCA spokesman said.
The benchmark rates are published hourly for 160 currencies and half hourly for the 21 biggest currencies, including sterling, which are set by calculating the median price of trades taking place in a 60-second window.
The FCA’s investigation has not yet become a formal one that could eventually lead to firms being disciplined for any manipulation, and no firms are under investigation.
There are hundreds of benchmarks being used in financial markets to set a gauge for the price of items ranging from interest rates to wheat to fuel oil but many of them had been known only to market participants until the Libor-rigging scandal erupted last year.
The international regulatory body known as International Organisation of Securities Commissions is now working on producing unified rules for benchmarks while Brussels has drawn proposals that could transfer regulation of benchmarks from London to Paris, where the pan-European securities regulator is based.
Barclays was fined £290m a year ago this month, followed by Swiss bank UBS and bailed out bank Royal Bank of Scotland and four more financial firms are still awaiting the details of the penalties they will face from the FCA for their role in rigging the key benchmark rate.
The regulator also began to investigate gas price benchmarks following a report in the Guardian sparked by claims by whistleblowers that the £300bn wholesale market was being manipulated.
The European commission has also raided the offices of companies such as BP and Shell following allegations that oil prices were rigged for more than a decade.
Changes to the Libor regime are still implemented by the British Bankers Association, which operates the benchmarks and on Wednesday said that the rates provided by individual banks would no longer be published daily as of 31 July. Regulators will receive the daily submissions to Libor but they will now be published with a three-month time delay.
BBA is being stripped of its role in Libor and has already reduced the number of interest rate benchmarks compiled.