U.K. FCA Opens Formal Probe Into Foreign-Exchange Trading

The U.K. markets regulator opened a formal investigation of currency-rate trading amid allegations of manipulation in the $5.3 trillion-a-day market that have triggered similar probes in the U.S. and Switzerland.

“We are gathering information from a wide range of sources including market participants,” the Financial Conduct Authority said in an e-mailed statement today. “Our investigations are at an early stage and it will be some time before we conclude whether there has been any misconduct which will lead to enforcement action.”

Traders at some banks may have pooled information about their positions through instant messages and used client orders to move benchmark currency rates, Bloomberg News reported in June. The FCA said at the time it was reviewing the allegations.

The London-based regulator said it is conducting the probes “alongside a number of other agencies both in the U.K. and abroad into a number of firms.”

Authorities are scrutinizing currency traders’ electronic messages as part of an investigation of potential manipulation of the market, a person with knowledge of the talks has said. The FCA is focusing on trading around the so-called WM/Reuters rates, benchmarks used to value trillions of dollars of investments, the person said.

Oil, Derivatives

After an investigation into the London interbank offered rate, or Libor, exposed widespread manipulation, regulators around the world began reviewing whether benchmarks for oil, derivatives and interest rate swaps were also rigged.

“The FCA opening an investigation into the FX market is an indication there is some evidence of possible wrongdoing,” said Peter Lodder, a barrister at 2 Bedford Row in London. “It doesn’t sound as widespread as the allegation of Libor-rigging, but the probe is gaining force with U.S. and Swiss involvement as well. It may well result in more fines against the banks involved and individuals being called into question.”

The FCA sent requests for information to four banks, including Frankfurt-based Deutsche Bank AG and New York-based Citigroup Inc., a person with knowledge of the matter who asked not to be identified said in June. The request doesn’t indicate any wrongdoing, the person said. Spokesmen at Citigroup and Deutsche Bank declined to comment.

Instant Messages

Royal Bank of Scotland Group Plc has handed over records of instant messages to the FCA after concluding a former currency trader’s communications with counterparts at other firms may have been inappropriate, according to two people with knowledge of the matter.

“We can confirm that we were contacted by the FCA on this matter,” Sarah Small, head of strategic media relations for RBS, said. “Our ongoing enquiry into this matter continues and we are cooperating fully with the FCA and our other regulators. We can provide no further comment.”

Switzerland’s Financial Market Supervisory Authority and the country’s competition commission said this month they were also opening probes into foreign-exchange rates, while the U.S. Justice Department has opened a criminal investigation into possible manipulation, a person familiar with the matter said last week. European Union antitrust regulators said on Oct. 7 they were reviewing the market.


WM/Reuters rates are published hourly for 160 currencies and half-hourly for the 21 most-traded. They are the median of all trades in a minute-long period starting 30 seconds before the beginning of each half-hour. Rates for less-widely traded currencies are based on quotes during a two-minute window.

The WM/Reuters rates are used by fund managers to determine what they pay for currencies and to compute the day-to-day value of their holdings, and by index providers such as FTSE Group and MSCI Inc. that track stocks and bonds in multiple countries. While the rates aren’t followed by most investors, even small movements can affect the value of what Morningstar Inc. estimates is $3.6 trillion in funds including pension and savings accounts that track global indexes.

The data are collected and distributed by World Markets Co., a unit of Boston-based State Street Corp., and Thomson Reuters Corp.

Bloomberg LP, the parent company of Bloomberg News, competes with Thomson Reuters in providing news and information as well as currency-trading systems.

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