FCA Chose Not to Chase Some Firms in FX Probe
The Financial Conduct Authority chose not to pursue all institutions involved in the foreign exchange rigging scandal, believing that targeting the worst cases would be enough to send a message of deterrence to all.
The FCA fined five banks a total $1.7 billion last November for attempting to rig the G10 spot foreign exchange market. It announced a remediation program at the same time, which left it for all financial institutions to prove that they had cleaned up their systems and controls.
FCA Chief Executive Martin Wheatley said in an interview Monday: “We probably could have taken enforcement actions against a much wider range of firms than we did.” Instead, the regulator “chose the most egregious behavior that we would take enforcement action against and then [worked] with the remediation program for the market as a whole,” he added.
The FCA wanted to “draw a line” under the scandal, he said. “You want to be able to encourage good behavior, not just punish bad behavior,” he said.
Around 100 of the FCA’s enforcement staff were tied up with the FX investigation. “We could have used all of our resources to do one issue, just FX but then we wouldn’t have been doing everything else that we need to do.”
The FX probe, which was quarterbacked by the FCA, was touted as a marquee moment for U.K. regulators who were criticized by lawmakers for being slow to act on other rigging scandals. The probe was co-ordinated with the U.S.’s Commodity Futures Trading Commission and the Office of the Comptroller of the Currency, among others.
Since it wrapped up, some industry watchers have questioned whether the probe was wide enough. In the U.S., for instance, New York regulators are looking into whether banks used algorithms on their trading platforms to manipulate FX rates. Mr. Wheatley said that the use of algorithms was not part of the original settlement.
“Our overall message is not to punish wrongdoings. That’s not in our charter; it’s not part of our objectives,” said Mr. Wheatley. “It’s to provide protection for consumers. We think an enforcement is an important deterrent against bad behavior, so it’s an important protection but in the hierarchy of objectives it’s not the one that sits on the top.”
The idea that the FCA chose not to probe some companies allegedly involved in manipulating the FX market “seems pretty absurd to me,” says Peter Hahn, a senior lecturer at Cass Business School in London. “What kind of signal does that send? If you are a small player you don’t get punished?” he added.
In an interview with the Wall Street Journal on Monday Mr Wheatley also downplayed fears that London would suffer as a financial center if the U.K. chose to leave the European Union.
Source: WSJ – FCA Chose Not to Chase Some Firms in FX Probe
