Chancellor Greg Osborne plans to work with Whitehall officials and the international Financial Stability Board to outline new guidelines by which Forex may operate, which at the moment functions highly unregulated.
Most trades on the Forex are executed by banks on behalf of global companies. These companies use Forex deals to transfer money between currencies, with many of these deals flowing through London.
However, there is also a prolific secondary forex market, with online companies, like iForex Partners providing independent users easy access to trading. Most people find it shocking that an exchange so large and one that handles trades of great global magnitude would be operating unwatched, possible opening it up to abuse. The Treasury is expected to announce its measures to “clean up the market” within the fortnight.
Forex prices are set by the traders who make the market deals. They pick their selection of trades on which they have been asked to execute, which usually means they pick the choice that is most beneficial to their bank. The 4pm “fix” is when prices are set, which also serves as the daily City benchmark against which currencies are priced.
Osborne’s move comes after the commencement of investigations conducted by regulators from around the world and including the Financial Conduct Authority (FCA) in London and the U.S. Department of Justice to dig deep into allegations of Forex manipulations.
It is believed that 15 banks are involved, nine of which have reportedly fired or suspended traders. Allegations have not been proven as of yet, and no admissions have been made.
Head of FCA, Martin Wheatley, said the allegations, if substantiated, could be “every bit as bad as Libor,” referring to the revelations made three years ago that the market which governs how banks lend to each other was regularly fixed.
Because the Forex is an international market governed by international rules, the U.K. government can only do so much on its own. Given this, it is working with the FSB, which is chaired by Mark Carney, Bank of England governor, who is producing a report on controlling the market this fall at the G20 summit in Brisbane.