Swiss Investigate Seven Banks Over Precious Metals Market Trading 

Inquiry involves possible collusion between UBS, Julius Baer, Deutsche Bank, HSBC, Barclays, Morgan Stanley and Mitsui

A Swiss regulator has opened an investigation into precious metals trading at a group of large banks, marking the latest in a line of probes into the rigging of key financial markets that have increasingly spread into the multibillion-dollar trade in metals.

Switzerland’s competition commission, known by its German-language acronym WEKO, said on Monday that it is investigating potential manipulation of prices in the trading of gold, silver and other precious metals at UBS Group AG, Julius Baer Group AG, Deutsche Bank AG, HSBC Holdings PLC, Barclays PLC, Morgan Stanley and Mitsui. WEKO said that it suspects that the banks have manipulated the so-called spread on precious metals, or the difference between bids and asking prices.

The probe isn’t the first into commodity markets, which up until several years ago were a key revenue generator for banks. Last month, the European Union’s competition watchdog said it is investigating alleged “anticompetitive behavior” in precious metals spot trading. In February, The Wall Street Journal reported that the U.S. Justice Department’s antitrust division is scrutinizing the price-setting process for gold, silver, platinum and palladium in London, while the Commodity Futures Trading Commission has opened a civil investigation.

Last year, Switzerland’s financial regulator, Finma, found that employees at UBS had “at least attempted” to manipulate precious metals prices and foreign exchange rates and forced the bank to hand back 134 million Swiss francs ($137 million) in related profits. That year, the U.K.’s financial regulator fined Barclays £26 million ($40.2 million) for its role in irregularities around the fixing of a daily gold price benchmark.

Switzerland has had a historic role in the trading, refining and holding of precious metals such as gold.

Spokesmen for UBS, Deutsche Bank, HSBC and Barclays declined to comment, as did a spokeswoman for Morgan Stanley.

A spokesman for Julius Baer said the bank is “fully cooperating” with the probe.

A WEKO spokesman said that if the regulator uncovers misconduct, it would be able to fine the banks the equivalent of up to 10% of their proceeds in Switzerland resulting from the alleged manipulation.

Scrutiny of big banks’ operations in the physical commodities markets comes on the back of several high profile investigations into the manipulation of financial benchmarks and the currency market. Commodities traders shift raw materials such as oil, gold and copper around the world, taking advantage of price discrepancies between different regions, and bolster their trading book with bets on commodities-related derivatives. The trading of gold has a daily turnover of about $150 billion, making it the largest precious-metals market.

Many banks have now left commodities markets or slimmed down their presence there. That includes Barclays, Deutsche Bank and UBS, along with Credit Suisse Group AG andJ.P. Morgan Chase & Co. Banks have said that they are refocusing resources on more profitable parts of their business, while analysts say that the sector has become more costly to operate in amid increased regulation and other factors.

For those left in these markets, regulatory attention has pushed trading and price fixing to become increasingly electronic. Last year, Finma mandated that UBS automate at least 95% of its global precious metals trading, alongside foreign exchange, by the end of next year, after concluding an investigation into manipulation of currency trading. The century’s old London gold fix has also moved away from conference calls to an electronic auction following scrutiny over whether it was being manipulated.

Despite the increasing probes and changes, Britain’s Financial Conduct Authority recently warned commodity-trading firms that they had learned little from the raft of high-profile cases of market abuse, and that they are failing to adequately monitor the risks of such abuse.

The FCA said the commodities trading firms that it reviewed were complacent about the risks of market abuse, and that many firms believe commodity markets are “’too deep, too liquid, and there are too many participants’” for them to be manipulated.

In Switzerland, domestic investigators have joined other international regulators in launching a number of probes across financial markets. WEKO disclosed last year that it had opened an into possible manipulation of foreign exchange rates by banks including UBS, Barclays and Julius Baer. That probe is ongoing

In 2012, UBS agreed to pay $1.5 billion to settle various regulators’ probes into the Swiss bank’s manipulation of benchmark interest rates.

Earlier this year, Deutsche Bank agreed to pay $2.5 billion to settle allegations in the U.S. and the U.K. regarding the rigging of benchmark rates.

Source: WSJ – Swiss Investigate Seven Banks Over Precious Metals Market Trading

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