Understanding the Forex Scandal for Businesses

Understanding the Forex scandal for businesses is an update on our previous post on the scandal, looking at the newest developments and addressing any concerns you have on the safety of foreign exchange transactions.The forex scandal, also known as the FX scandal or forex probe, involves the investigation into alleged collusion between FX traders to artificially rig the WM/Reuters benchmark exchange rates, in the colossal $5.3 trillion daily foreign exchange market.The WM/Reuters benchmark fixings, also known as the 4pm "fix", involve almost 160 currencies and are based on inflowing data during a one minute period. The traders involved in the scandal are accused of colluding by intentionally sequencing customer trades up to 60 seconds before and during the fixing of the benchmark rates in order to manipulate them and thus benefit their own position.Forex scandal explainedThe forex scandal involves at least 12 of the world's largest banks, including the Royal Bank of Scotland, UBS, Credit Suisse, Lloyds, Standard Chartered, HSBC, Morgan Stanley, BNP Paribas, Bank of America Merrill Lynch, JP Morgan Chase, Deutsche Bank, Barclays and Citi.The collusion is said to have gone on for a decade.Bank finesThe FX scandal investigation has involved regulators worldwide, led by the Financial Stability Board, the international body established by the G20 in 2009.Regulatory bodies include the UK's Financial Conduct Authority, Switzerland's WEKO, Hong Kong's Monetary Authority and in the US, the Securities and Exchange Commission and the Commodity Futures Commission, which have all conducted individual probes.The UK regulator, the Financial Conduct Authority (FCA) expects to shortly agree to the terms of the fines to be imposed on six of the banks involved - Royal Bank of Scotland , HSBC , Barclays , Citi , UBS and JP Morgan - a record amount of up to 1.8 billion pounds, which will surpass the fines dished out for the other major financial probe of recent times, the Libor scandal.Barclays was the first bank to be fined in 2012 for rigging the 4pm fix, totalling 290 million pounds.New measures by banksThe banks involved, including Barclays and Deutsche Bank have announced new measures that will make it more difficult for traders to take advantage of the unregulated currency exchange market for their own benefit.These measures include banning the use of internet chatrooms, processing all foreign exchange orders through electronic systems, limiting access to client order information and setting a ceiling for the amount employees can charge for executing currency exchanges.FX insiders see the measures taken by banks as a long overdue update to the industry.

Keeping safe from exchange rate manipulation with Kantox and other real-time exchange rate providers

1. The foreign exchange market is so big and involves so much money ($5.3 trillion a day in trading) that no single player could realistically impact exchange rates.
2. From details released by investigators, manipulation of the rates occurred on the exact minute when the rates were set.
3. Trading for your business with Kantox is never based on the WM/Reuters benchmark rates that traders from the market's biggest players - some of the world's largest banks - have attempted to or succeeded in manipulating. Kantox transactions are based on the live mid-market exchange rates, updated in real-time. You should always close your trades based on current rates, as Chatham Financial also advises.
4. Larger corporations that have purchased FX products based on the WM/Reuters benchmark rates may well have been affected. Lawsuits have already been filed against some of the biggest banks. A 12-strong group of investors filed a lawsuit against all 13 banks mentioned above apart from Lloyds as a result of the FX probe. Conversely, the impact of the rate rigging on companies that use FX providers who offer real-time market rates such as Kantox would range from zero to insignificant.
5. At Kantox our business model aims to robustly decentralise the foreign exchange market away from the dominance of a select number of big banks through company-to-company currency exchange. On the other hand, as long as there are a select few players - the largest banks in FX - there will always be the risk of collusion and manipulation.

Kantox was founded on the core principles of transparency and fairness, and so, even if we were as big as one of the leading banks, such attempts at manipulation would go against our very nature as a company. Moreover, we are fully committed to regulatory procedures that promote competitiveness and transparency.

Transparency counts

We offer you the live mid-market exchange rate updated in real-time. Added to that, we show you clearly the single fair fee we charge (averaging 0.14% to 0.19% per transaction), and we should mention that there are absolutely no hidden charges included in the small print.