George Osborne, I will give SFO blank cheque to probe forex

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Sunday 19 April 2015

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  • George Osborne: I will give SFO blank cheque to probe forex manipulation

    Chancellor George Osborne will write to the Serious Fraud Office to tell them
    to ‘pursue criminal wrongdoing at the highest level’

    George Osborne will write to the Serious Fraud Office on Friday Photo: EPA

    5:30AM GMT 14 Nov 2014

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    George Osborne will give the Serious Fraud Office all the money it needs to complete its investigation into foreign exchange manipulation, the Chancellor will say on Friday.

    The move comes just days after the Financial Conduct Authority (FCA), together with regulators in the US and Switzerland, fined six banks $4.3bn after they found that traders had colluded in chat rooms to manipulate foreign exchange benchmarks.

    In a letter to the SFO on Friday, Mr Osborne will make it clear it is important that those responsible for criminal acts in the financial sector are brought to justice.

    “We must continue to pursue criminal wrongdoing at the highest level,” the Chancellor will write. “I have always made sure that the SFO has the funds it requires for its investigations.

    “I understand that the SFO is in the early stages of a major investigation into forex trading. Given the importance of this work, the Treasury will provide the required funding for this investigation.”

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    More penalties for foreign exchange manipulation, Libor-rigging and mis-selling could take the total fines levied on the banking industry above $300bn (£190bn), analysts have predicted.

    The total bill faced by banks for currency rigging is expected to quadruple in the next two years to more than $16.5bn, with fines meted out on Wednesday likely just the first in a wave of settlements, according to Morgan Stanley.

    The analysts believe that global regulators will slap 10 banks with another $12.2bn in foreign exchange related fines, three times the amount announced on Wednesday.

    Several other authorities, most notably in the US, are still investigating the banks.

    Morgan Stanley’s Huw Van Steenis predicted that in addition to the $6.2bn that banks have set aside to date, another $10.3bn-worth of provisions will have to be made by the end of 2016.

    This would take the total bill for foreign exchange rigging to $16.5bn (or £10.5bn), only slightly less than the $17.7bn predicted bill for rigging Libor and its euro equivalent Euribor. The three British banks being censured by authorities – the Royal Bank of Scotland (RBS), Barclays and HSBC – face another $5.3bn in fines, according to the research.

    Fitch, the credit ratings agency, said Wednesday’s fines would not affect the current ratings of the relevant banks, but warned that future settlements could.

    « Criminal investigations into this matter are ongoing and the final costs could be substantially higher, » Fitch said. « Ratings could be affected if future fines or business sanctions are large enough to affect capital or there are material constraints on operations. »

    Over the next two years, Morgan Stanley predicted that banks would have to earmark another $69.9bn for misconduct fines, including those related to mis-selling mortgage-backed securities and payment protection insurance.

    Added to the $232bn put aside our paid out for misconduct and other regulatory fines since 2009, this would bring the banking industry’s total bill for misbehaviour to $302,069,000,000.

    UK banks are expected to set aside another $34bn in the coming years. It has been predicted that RBS will be fined around $1.8bn next year for mis-selling mortgage backed securities in the run-up to the crisis.

    More fines for manipulating foreign exchange rates are almost certainly in the post. Barclays did not settle with regulators on Wednesday after saying it would prefer a co-ordinated settlement with other regulators.

    The US Department of Justice, New York’s Department of Financial Services, the Federal Reserve, the US Securities and Exchange Commission, and the Hong Kong Monetary Authority are all still investigating foreign exchange rigging.

    And that is unlikely to be the end of the financial pain. On top of regulatory fines, banks could face claims for billions in damages from clients.

    Clive Zietman, head of commercial litigation at Stewarts Law, said: « Following the [fines] and the clear evidence of attempts to rig key forex benchmarks over a period of more than six years, major institutional investors are carefully evaluating their options. »

     

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