London's foreign exchange market faces Government regulation, according to widespread media reports first made public by the BBC.
Foreign exchange, also referred to as ‘forex’ or ‘FX’, is the world’s most traded market with an estimated 3 trillion pounds sterling changing hands each day. It involves the exchange of one currency for another at an agreed exchange price.
Currently, forex is largely unregulated and left to traders who execute deals on behalf of global companies, but Britain's Finance Ministry, believed to be working with the international Financial Stability Board (FSB), look set to announce new measures designed to put an end to the currency rate-fixing scandal and clean up market practices.
The Chancellor, George Osborne, may unveil his regulation plans within two weeks as he is set to deliver his annual Mansion House speech to London's financial community on 12 June. Bank of England Governor, Mark Carney, who like Mr Osborne has made his desire to clean up Britain's banking sector known, will also appear at the event.
One method of regulation suggested is to subject the forex market to the same statutory regime that was imposed on the London Interbank Offered Rate (Libor) last year. This would make manipulating the foreign exchange market a criminal offence.
The Financial Stability Board, chaired by Mr Carney, is also expected to produce a report making recommendations of how to improve currency fixings.
Whilst the Treasury refused to comment on the media reports, a Treasury spokesperson stated:
“A key part of the government’s long term plan is building stronger and safer banks that can do more to support Britain’s consumers and businesses...
“Ensuring confidence in the fairness and effectiveness of financial markets is central to this, which is why we’ve taken action to reform Libor, and why we’re now using the lessons we learned here to inform and shape the global debate on benchmark reform.”
It is perhaps unlikely that the forex market will escape media reports anytime soon, with the UK's Financial Conduct Authority, the US Department of Justice as well as Asian authorities thought to be undertaking their own investigations into FX rate rigging allegations.
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