NYDFS Intends to Place Monitors at Deutsche Bank and Barclays as FX Investigation Continues

Part of the continued investigation by global regulators in regards to possible collusion and price fixing in the FX interbank market, the New York Department of Financial Services (NYDFS) has issued its intentions to place monitors at Deutsche Bank and Barclays. According to information gathered by the Wall Street Journal, the NYDFS contacted lawyers at the two banks to notify them about the regulator's intention to place monitors. If enacted, the monitors will be tasked with taking a closer look at how FX trading is conducted at the two banks.

The NYDFS' request for monitors comes as primary FX bank dealers have been investigated since Q4 of last year. Global regulators are seeking to determine whether leading banks, where the largest ten accounts for nearly all of the estimated $5 trillion a day trading in the FX market, had colluded to manipulate rates. Specifically, trading in and around the afternoon London Fix period, which is used by many fund companies to market the value of their foreign currency exposure as well as settle trades, is being evaluated for manipulation. Since the beginning of the FX Probe, banks have already undergone internal compliance procedures which have led to some firms announcing traders being let go as well as banning the use of cross bank messaging platforms.

For the NYDFS, placing monitors at banks has precedence, as it is a common practice taking place among US firms. However, according to the WSJ, the placing of regulator monitors during an investigation is part of actions being spearheaded by NYDFS' Superintendent Benjamin Lawsky. Similar monitors were placed by the NYDFS as BNP Paribas was being investigated for anti-Money Laundering Money Laundering Money laundering is a blanket term to describe the process by which criminals disguise the original ownership and proceeds of criminal conduct by making such proceeds appear to be derived from a legitimate source.Money laundering is an issue that traverses countless industries and sectors, which includes the financial services space. Though criminal money may be successfully laundered without the assistance of the financial sector, billions of dollars’ worth of criminally derived money are laund Money laundering is a blanket term to describe the process by which criminals disguise the original ownership and proceeds of criminal conduct by making such proceeds appear to be derived from a legitimate source.Money laundering is an issue that traverses countless industries and sectors, which includes the financial services space. Though criminal money may be successfully laundered without the assistance of the financial sector, billions of dollars’ worth of criminally derived money are laund Read this Term breaches, with the probe ultimately leading to a $9 billion penalty imposed on the bank.

Effects on US/Europe Relations?

In the cases of Deutsche Bank and Barclays, they are being singled out as the information gathered by the FX investigations has pointed to the greatest problems having taken place at those banks. However, being singled out could lead to tension between Europe and the US. Shortly following BNP Paribas’s announcement of being found guilty and penalized by the US, French Finance Minister, Michel Sapin, fired back at the US stating that too much of Europe’s economy revolves around US dollar-based transactions. Sapin’s statements were viewed as being in reaction to the US’s involvement in investigating and penalizing one of France’s most important financial institutions.

Sapin’s statements are part of a small but growing contingent of complaints from people against the existing dollar dominated global economy. According to critics of the US, they believe that the country’s promotion of global transactions being denominated in dollars creates an artificial demand for the currency, providing support for the Fed's continued aggressive quantitative easing which has taken place since 2008. Among specific assets being targeted is crude oil, where the dollar was officially put in place to settle trades due to petrodollar agreements made in 1973.

In terms of the current proposals of monitoring by the NYDFS, consequences of penalties versus the two banks could also lead to tension between the US and Europe. Previous to the current FX probe, Barclays was targeted by both US and UK regulators for its involvement in the LIBOR rate fixing scandal which led them to be fined over $450 million, with $360 million imposed by the US Justices Department and CFTC CFTC The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss Read this Term, versus only $92.8 million by the UK FSA.