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By Huw Jones
LONDON, Nov 19 (Reuters) - The first set of rules for theunregulated multi-trillion dollar foreign currency market willbe considered after the completion of probes into possiblemanipulation, a British regulator said on Tuesday.
The Financial Conduct Authority (FCA), along with watchdogsfrom the United States and Asia, is investigating if traderstried to rig foreign exchange benchmarks, such as the so-calledLondon fixing at 4 p.m. each day, which is the nearest thing toa closing price in the 24-hour, self-regulated market.
Barclays, UBS and Deutsche Bank are cooperating with regulators who are investigatingthe matter, while Royal Bank of Scotland has said it isreviewing its forex processes.
Inquiries into the forex market are the latest probe intopossible market manipulation by leading banks, coming afterhefty fines were imposed on several lenders for rigging theLondon interbank offered rate, or Libor, a widely used interestrate benchmark.
FCA Chief Executive Martin Wheatley said the watchdog wasgathering "facts and evidence" about what may have happened inforex markets.
"If that evidence suggests a more fundamental problem, thenyou've always got a set of responses," Wheatley told reporterson the sidelines of an FCA conference.
"One response says you have to enforce against poorbehaviour, and the other response is to look at the conditionsthat allowed that behaviour to exist. That is what we did withLibor and came up with a set of structural changes," Wheatleysaid.
"Frankly it's an unregulated market and that would be a bigpolicy change for global regulators to decide that forex neededto be a regulated market. The truth is we are at a very earlystage and a long way off before we can make any conclusions."
REGULATORY PERIMETER
Currently Libor is the only widely used financial benchmarkto be directly regulated by the FCA in Britain, following a lawin April which also made rigging of Libor a criminal offence.
The watchdog has, however, begun looking beyond thisregulatory "perimeter" to other types of benchmarks.
With 40 percent of global forex trading taking place inLondon, the FCA has already begun scrutinising how benchmarksbased on that market are being compiled, an FCA official said.And its inquiries go beyond that area.
Those who administer oil, gold and other major, non-interest rate-related benchmarks, as well as those in forex,have been asked to assess by July next year how they comply withnew global regulatory principles governing all types of indexesfollowing the Libor scandal.
The FCA has also asked banks which provide quotes for arange of benchmarks, including forex, to "run a rule" over theirsubmissions process and show how they have applied lessons fromthe Libor scandal, the FCA official said.
The key foreign exchange rates, WM/Reuters, are compiledusing data from Thomson Reuters and other providers,and are calculated by WM, a unit of State Street Corp.Thomson Reuters is the parent company of Reuters News, which isnot involved in the fixing process.
The WM/Reuters rate set at 4 p.m. London time is consideredthe benchmark by many companies and investors because of thelarge amount of FX trading which is done in London.
