The Fed Looks into FX Manipulation

by on January 13, 2014 7:13 am BST

The Federal Reserve is examining whether or not currency traders at leading global institutions were manipulating exchange-rates which is increasing the likelihood institutions will be penalized for little to no oversight and internal controls. The Federal Reserve oversees US bank holding companies with Citi and JP Morgan being two US banks among the several global institutions involved in the ongoing probe.

The Fed joins the worldwide FX manipulating probe as reports of the “Cartel” appeared from Bloomberg News earlier this year. A group of currency traders were dubbed the “Cartel” after it was suspected that these traders were manipulating exchange-rates based on client orders for institution and personal benefit. Additional agencies, including the US Justice Department, the Swiss Competition Commission and the United Kingdom’s Financial Conduct Authority (FCA), are probing independently.

The Fed’s involvement could pose a threat to banks if lapses in controls is found through the implementation of fines, removal of banking officials and other penalties. “The Fed has discretion whether to and how much to fine the banks if deficient controls or lack of supervision resulted in traders at these banks manipulating currency rates,” said Jacob S. Frenkel, a former federal prosecutor.

In an unrelated case, to show regulator’s impact, JP Morgan was fined $200 million by the Federal Reserve after trader Bruno Iksil, the “London Whale,” caused a $6.2 billion dollar losing derivatives trade. The troubled institution was fined over $1 billion due to market manipulation and lack of risk-management oversight.