Trading benchmarks to be scrutinised following manipulation claims

A powerful global financial regulator is to scrutinise benchmarks that are used in currency trading, a first sign that the market may be kept on a tighter leash after manipulation claims.

The Financial Stability Board, which coordinates regulation for the Group of 20 leading economies, is already working on a reform of interest rate benchmarks following the Libor interbank rate-fixing scandal.

“The FSB is in the process of defining the work it will do on issues around FX benchmarks,” the Swiss-based agency told Reuters.

Britain’s Financial Conduct Authority and the US department of justice have been probing allegations that traders at some of the world’s biggest banks manipulated the largely unregulated $5.3tn-a-day (€3.8tn) foreign exchange market.

The continuing probe into the Libor interest rate brought to light how easy it is to manipulate the widely used benchmark and has already triggered heavy fines for banks, including UBS and Barclays.

The London interbank offered rate, known as Libor, is compiled from banks submitting quotes for interest rates at which they say they could borrow and is published by the British Bankers’ Association. The FSB last July set up two groups to make recommendations to reform Libor and similar rates. One group consists of regulators, and another brings together market participants. The groups are due to make recommendations in June.

A US market regulator has said Libor should be scrapped because it is based on a hard-to-control survey of market participants. Others take a less drastic stance, because the benchmark is so widely spread.