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December 8, 2022

Federal Reserve said to probe banks over forex fixing


The Federal Reserve is investigating whether traders at the world’s biggest banks rigged benchmark currency rates, raising the risk that firms will be penalized for lax controls as regulators look for wrongdoing, Mediafax informs, quoting bloomberg.com.

The Fed, which supervises U.S. bank holding companies, is among authorities from London to Washington probing whether traders shared information that may have let them manipulate prices in the USD 5.3 trillion-a-day foreign-exchange market to maximize their profits, said a person with direct knowledge of the matter, asking not to be named because it’s confidential.

“The Fed has discretion whether to and how much to fine the banks if deficient controls or lack of supervision resulted in traders at these banks manipulating currency rates,” said Jacob S. Frenkel, a former federal prosecutor and now a lawyer at Shulman Rogers Gandal Pordy & Ecker PA in Potomac, Maryland.

The Fed punished firms for internal-control lapses last year as it worked with state and federal authorities on cases involving Iranian sanctions and botched derivatives bets. Deutsche Bank AG, Citigroup Inc., Barclays Plc and UBS AG control more than half of all foreign-exchange trading, according to a May survey by Euromoney Institutional Investor. Barbara Hagenbaugh, a Fed spokeswoman in Washington, declined to comment on the probes. Fed supervision focuses on potential risks to banks and assesses a firm’s ability to “identify, measure, monitor and control these risks,” according to the central bank’s website. The Fed fined JPMorgan Chase & Co., the nation’s largest lender by assets, USD 200 million last year after a U.K. trader known as the London Whale for his outsized bets lost more than USD 6.2 billion on botched derivatives transactions. Other recent Fed enforcement actions include a USD 50 million penalty last month against RBS. Authorities are looking for manipulation in a widening list of benchmark financial rates, including the London interbank offered rate, or Libor, and ISDAfix, used to determine the value of interest-rate derivatives.

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