The UK’s market watchdog, the Financial Conduct Authority (FCA) starts today the monitoring of seven additional major London-based financial benchmarks in the fixed income, commodity and currency markets.
This extends the FCA’s initial regulation of LIBOR (the London Interbank Offered Rate), which was first introduced in 2013 in an effort to reestablish the credibility of the most important FX benchmarks in the global banking world.
However, since then new revelations have come to light about how the system by which a small number of bankers determine a number of pivotal rates is ripe for abuse. Several bank traders have pleaded guilty to LIBOR manipulation and calls for transparency grew.
Relying on the complexity and opacity of FX has meant that extortionate fees could be charged and the markets could even be manipulated.
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The new benchmarks under FCA regulation include:
- WM/Reuters 4pm London Fix, which is the dominant global foreign exchange benchmark
- Sterling Overnight Index Average (SONIA) and the Repurchase Overnight Index
- Average (RONIA), which both serve as reference rates for overnight index swaps ISDAFix, which is the principal global benchmark for swap rates and spreads for interest rate swap transactions
- London Gold Fixing and the LMBA Silver Price, which determine the price of gold and silver in the London market
- ICE Brent index, which acts as the crude oil market’s principal financial benchmark
Good News for the Industry
FX entrepreneur Philippe Gelis, CEO and Co-founder of Kantox has commented positively today on the new FCA regulation, he said: “The move by the Financial Conduct Authority to begin regulating seven additional major UK-based financial benchmarks, including currency markets, is a necessary step in moving away from the collusion and manipulation inherent in the traditional financial services sector.
“Following the various FX scandals that have hit the headlines in the last few years, most recently the Bank of New York Mellon FX fraud revelation, the reputation of financial services in the City of London has been hammered. There has traditionally been a reliance on big banks and brokers, and to a large extent, they have enjoyed huge profits thanks to this dominance. Relying on the complexity and opacity of FX has meant that extortionate fees could be charged and the markets could even be manipulated.
“Whilst this is a welcome move towards transparency, the only real way to fully protect oneself from potential manipulation and cohesion in the FX market is through access to real-time mid-market exchange rates, access to transparent pricing, and ensuring that a regular benchmarking process is followed. Rather than what was previously only available to large-cap companies, this information is now accessible to SMEs in large part because of technology leveraged by the FinTech sector. Customers now have more options than ever before, and coupled with this FCA regulation announcement, it is good news.”