Mon, Jun 08, 2015 - Page 15 News List

Britain plans cleanup of scandal-hit markets

LOOSE ENDS:Industry officials said a new body to help provide guidelines on market practices and enforce a new global code of conduct could be forthcoming

Reuters, LONDON

Britain’s regulators are to unveil plans on Wednesday that aim to clean up behavior in financial markets where banks have been fined billions of Great British pounds for rigging currencies and interest rate benchmarks.

The Bank of England, British Exchequer and the British Financial Conduct Authority (FCA) are to publish recommendations from their Fair and Effective Markets Review into conduct and operation of currency, bond and commodity markets.

“It is going to say some quite significant things about what the scope of regulation should be for asset classes that historically have not been heavily regulated,” FCA chief executive and review co-chair Martin Wheatley told reporters.

The review is to focus on how to raise standards of behavior among traders at banks, recommend tougher sanctions and give markets more detailed guidance on what are acceptable trading practices.

‘ROLLING BAD APPLES’

Finance industry officials expect the review to take on board some of their ideas, such as cracking down on traders known as “rolling bad apples,” making it harder for a rogue trader to get a job unchallenged at another bank.

Some expect a new independent body to help with providing guidelines on market practices and enforce a new global code of conduct that central bankers are already working on.

Wheatley said, for example, that there is a need to determine more clearly when legitimate hedging in markets becomes abusive “front-running,” where banks use information to trade on their own account ahead of customers.

Guidance is also expected on when it is acceptable to pull out of a trade at the last minute in currency markets, a practice known as “last look.”

Given the global nature of commodity, foreign-exchange and bond markets, Wheatley said international backing would be needed to make the review’s recommendations effective in practice.

CAPITAL CHARGES?

An industry official said British regulators could slap extra capital charges on banks that fail to apply the recommendations.

Bank of England Governor Mark Carney and British Chancellor of the Exchequer George Osborne, who ordered the review last year, are expected to touch on its findings in speeches on Wednesday evening at the Mansion House in the City of London financial district.

Economists are also waiting to hear whether Carney will comment on the strength of sterling, which has risen 4 percent over the past year, and do not foresee a repeat of last year’s warning that interest rates could rise sooner than expected.

“The underlying impression at the moment is that the bank is very much in wait-and-see mode,” ADM Investor Services bond strategist Marc Ostwald said.

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