Some reckon that the forthcoming Forex scandal (see our story: Forex Gets Its Collar Felt) will be bigger than the Libor affair, but there is a major political dimension as well.
Average daily trading on the Forex markets is over $5 trillion and the UK/US Governments are worried that it is mostly unregulated and open to manipulation. The UK is said to be working with the international Financial Stability Board (FSB) to create new regulations. A major announcement is expected within the next few weeks.
The market framework, which has its centre in London, relies on a small number of bank traders who put through deals on behalf of large companies that move money around the globe. A particular point of concern for the authorities is the 4pm fix, at which time currencies are priced and the greatest potential for manipulation occurs.
Regulators in the UK and the US are already investigating a number of financial institutions and individuals, although no allegations have yet been proved.
It’s hoped that concerns are being raised for the right reasons – partly because of the increased popularity of forex trading with private investors. They see the Forex market as fair game and a whole industry has been built around access to the currency markets and associated trading strategies.
Yet observers reckon that Chancellor George Osborne is taking a hard look at Forex in the hope that another huge scandal won’t hit the markets just before the next election, giving opposition parties a massive stick with which to beat the Coalition.
That sort of thinking is all well and good, but private investors, and companies that provide Forex services, need to know that it is a level playing field out there. The regulators need to take the right steps to provide Forex transparency and fairness, but they must also be careful of not killing what is a very vibrant and exciting market.
Can the regulators strike the right balance? We’ll have to wait and see.
