Currency Investors Set to Face Wave of Regulation, Aite Says

  • Buy-side firms face stricter compliance after bank scandal
  • Algorithmic trading seen rising to 28 percent this year

Currency investors will need to transform the way they do business as global regulators expand their focus from banks, according to Aite Group, a consulting firm based in Boston.

Asset managers who are active in foreign exchange will face increased requirements for registration, due diligence, collateral and record-keeping in the coming years, said Howard Tai, a senior analyst at Aite Group, in a report published Thursday. To prepare for rules and changing market conditions, investment firms should increase staff training on compliance, analyze costs more closely and be open to trading with nonbank market makers, he said.

“Buy-side customers are beginning to become more aware of execution cost, after several foreign-exchange industry scandals occurred in the earlier part of this decade,” Tai wrote. “Gone are the days of asset managers’ old head-in-the-sand attitudes. No longer can they leave their sell-side counterparts to figure out all the nuts and bolts of regulatory changes.”

Firms will need to bolster compliance systems while also cutting budgets for staff and technology, Tai said.

Central bankers and industry leaders are looking to beef up standards after a price-rigging scandal led to about $10 billion in fines and penalties and prompted dealers to suspend or fire staff in the wake of a transatlantic crackdown.

Other findings from the Aite report include:

  • Electronic trading in over-the-counter currency markets is forecast to climb to about 64 percent in 2019
  • Algorithmic trading is expected to rise 1 percentage point this year to 28 percent, more than double 2011 levels

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