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By Patrick Graham
LONDON, Feb 7 (Reuters) - Britain can be expected shortly tobegin criminal investigations into the alleged rigging ofcurrency markets if comments by its chief market regulator thisweek are taken at face value, an industry umbrella group said onFriday.
Regulators in the United States, Britain, Europe and Asiaare looking into whether traders at around 15 of the world'sbiggest banks colluded to use client order informationimproperly to influence the daily "fixes" seen as benchmarkrates in the $5.3 trillion-a-day market.
After a new volley of dismissals at major banks in Londonand New York, the ACI, a broad financial industry body whichgroups traders and participants in foreign exchange markets,said the priority was for banks and officials to take action asfast as possible to root out wrongdoers.
But in a robust defence of how banks were dealing with therow, it also said that the investigation will probably now moveto include asset management firms and that banks' general ruleswere themselves not in question.
"The FX market is the largest market, and just like theequity market or the bond market you do get individuals whomisbehave," said David Woolcock, deputy head of the ACI'sforeign exchange committee.
"You can get people who participate in insider trading andwho commit fraud but these are matters for individuals who haveno place in our markets and should be rooted out. If someindividuals are misbehaving and engaging in criminal activity,let's treat it as criminal activity and move on."
Investigations into charges that senior dealers colluded torig rates at the fixings are now well-advanced in severaljurisdictions including the United States and Switzerland.
Martin Wheatley, the head of Britain's financial regulatorFCA, said this week that its probe was set to stretch into nextyear and that the charges were "every bit as bad" as the Liborinterest rate-fixing scandal which cost banks $6 billion infines.
"Wheatley is quite right when saying that the allegationscould be as serious as the allegations were regarding Liboralthough they are of a different nature," Woolcock said.
"The only definite in all this is that we have allegationsmainly in the press and a series of investigations that havegiven no concrete sign that a smoking gun has been found. IfWheatley is saying that the allegations are as serious then Isuspect that we will see criminal investigations very shortlygiven the nature of the actual allegations."
Any criminal investigation could run in parallel with theFCA probe, which is expected to continue into 2015.
DEFENCE
So far, the U.S. investigation into the affair has askedmore than a dozen banks for documents, including Barclays, Credit Suisse Deutsche Bank,Goldman Sachs, Lloyds Banking Group, Royal Bankof Scotland, Societe Generale and StandardChartered.
Woolcock welcomed moves by the European Union to tighten upregulations dealing with insider trading. But he stressed thatit was for now unclear why dealers have been laid off orsuspended.
Groups of senior traders are alleged to have sharedmarket-sensitive information on the benchmark known as "theLondon fix" on chatrooms with names like "The Cartel" and "TheBandits' Club".
"If some of these dismissals are for inappropriate commentsin chatrooms, until we know what the comment is it is hard tosay anything more," said Woolcock.
"There is a difference between breaking something that is inyour contract of employment and attendant handbook say regardingexternal communication and that might not necessarily in and ofitself involve engaging in unethical behaviour in the market."
Banks have consistently avoided linking the sackings andsuspensions to the FX probe, but a number of sources have saidthe moves are the result of internal investigations.
Woolcock said ACI members had reported volumes around thefixings, used to price trillions of dollars of investments anddeals, had fallen, raising the question of why asset managershad earlier been focussing so much of their business around onepoint in the trading day.
Most of the world's currency market trades between banks,with the top 10 accounting for over three quarters of the dailyflow, according to the last Euromoney poll, but much of thetrading is done on behalf of asset managers, funds and firms.
"It is probable that the focus of this story may now move onto the buy side. Asset and Fund Managers have been keeping quieton this issue and there are clearly questions to answer,"Woolcock said.
"There may have been pressure on the banks from the assetmanagers to take on large orders and they went along with it.What I do not understand is why large asset managers are placingvery large orders to be transacted in a 60-second window, thiswould not usually happen in other markets they operate in."
The ACI, which counts some 13,000 financial marketprofessional members in more than 60 countries including theworld's biggest banks, asset managers and brokerage houses, hasbecome the traditional forum for discussing trading issues inthe foreign exchange market.
Its code of conduct sets standards for behaviour byparticipants in what has always been a largely self-regulatedmarket and Woolcock said there was no case as yet for movingaway from that model.
"The problem with regulation is can you actually standardiseit across the entire market, especially as global a market asFX," he said.
"Self-regulation and following best practice is the bestregulation as long as its backed up with appropriate legalsystems and regulations in general about what happens when thereis a malfeasance." (Additional reporting by Clare Hutchison; Editing by TobyChopra)
