FedFin Reviews Forex Benchmark Legal/Reputational Risk
Late last week, the issue of benchmark-rate manipulation took renewed prominence as Singapore punished the world’s largest banks for rigging LIBOR and allegations resurfaced with regard to forex-trade front-running by some of these same big banks. The latter is reportedly under active review in the U.K. with regard to the WM/Reuters indices. The latter inquiry, together with an EU one over oil prices, has led some to question the value of market-based rates – viewed by many as the alternatives to cartel-set benchmarks – as an effective way to insulate end-users from market manipulation over key indicators. In this report, FedFin assesses the status of regulatory action in this arena, which has the potential to reignite claims that big banks are “too big to jail” or otherwise warrant severe sanction. Specific actions of course also cause significant legal and reputational damage to individual institutions, as well as challenge broader market assumptions. Perhaps the most far-reaching of these with regard to forex-benchmarks is Treasury’s contentious decision last year to use Dodd-Frank flexibility and exempt OTC-forex operations from most of the law’s central-clearing and related requirements (see FSM Report FOREX7).
The full report is available to retainer clients. To find out how you can sign up for the service, click here