The Financial Stability Board, which coordinates regulation for
the Group of 20 leading economies, is already working on a reform of
interest rate benchmarks after the Libor interbank rate-fixing
"The FSB is in the process of defining the work it will do on issues
around FX benchmarks," the Swiss-based agency told Reuters in an
Britain's Financial Conduct Authority (FCA) and the U.S. Department
of Justice have been investigating allegations that traders at some
of the world's biggest banks manipulated the largely unregulated
$5.3 trillion-a-day foreign exchange market.
The continuing probe into the Libor interest rate brought to light
how easy it is to manipulate the widely used benchmark and has
already triggered heavy fines for banks including UBS and Barclays.
The London interbank offered rate, known as Libor, is compiled from
banks submitting quotes for interest rates at which they say they
could borrow and is published by the British Bankers' Association.
The FSB last July set up two groups to make recommendations to
reform Libor and similar rates, which underlie trillions worth of
contracts ranging from student loans and mortgages to complex
One group consists of regulators, and another — chaired by Darrell
Duffie, a finance professor at Stanford University — brings together
market participants. The groups are due to make recommendations in
A U.S. market regulator has said Libor should be scrapped because it
is based on a hard-to-control survey of market participants. Others
take a less drastic stance, because the benchmark is so widely
The FSB is expected to announce the efforts to look at foreign
exchange markets "pretty rapidly," a source familiar with the
situation said, but has not yet decided who would be in charge or
what shape the work would take.
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"That is something for the FSB to decide and they would delegate to
whomever they felt was suitable," this person said, asking not to be
identified by name.
In the foreign exchange probe, groups of senior traders are alleged
to have shared market-sensitive information relevant for the popular
WM/Reuters "fix," or London fix, which is set at 4 p.m. London time,
using actual trades.
WM/Reuters rates are compiled using data from Thomson Reuters and
other providers and are calculated by WM, a unit of State Street
Thomson Reuters is the parent company of Reuters News, which is not
involved in the fixing process.
In an effort to avoid the further wrath of authorities, banks with
major currency operations such as Citi, Deutsche, JPMorgan and
others have curtailed the use of chatrooms widely used by these
The FSB's recommendations, which will carry huge weight in the
market, mark a shift from December, when FCA Chief Executive Martin
Wheatley said any effort to regulate the market "would be a big
policy change," and that regulators were at a very early stage.
(Reporting by Douwe Miedema; editing by Karey Van Hall and Leslie
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