Written by Andres Garcia Alonso, PKF Malta, 25th May, 2015

We are helpless!!

This month there have been released the news that the Justice Department and the US Federal Reserve struck a deal with six of the largest banks in the world, which will be sanctioned with a combined fine of 5.775 million $ (5.200 million €) for having manipulated for five years the exchange rate of currencies.

Barclays, UBS, JP Morgan, Citigroup, Bank of America and Royal Bank of Scotland were handed the sum, the biggest combined bank settlement in history

Traders at the banks used electronic chatrooms, describing themselves as “The Cartel”, to manipulate currency benchmarks, making large profits at the expense of customers.

What is the Forex Market?

It’s where the value of currencies trades. Companies around the world and individual investors depend on these changes to determine their contracts. It is key tool for world trade that moves 5 billion $ per day.

40% of the global foreign exchange market is concentrated in London, followed by the US (19%), Singapore (5,7%), Japan (5,6%) and Hong-Kong (4,1%)

What’s is the FIX?

The prices of the currencies fluctuate through the day on a continuous market. Companies and international investors tend to take as a reference two latches of the London market, the eleven o’clock in the morning and the London FIX, the closure of four o’clock in the afternoon in London, where a key global benchmark based focuses on movements that occur in the 30 seconds before the four. Operators who manipulated bought downward and they did raise the price in the summit of the FIX, playing with the difference.

What the operators did?

They were exchanging info through a private internet chat and using a coded language, shared confidential information about purchases of customers, manipulate the price of that currency and winning with differences.

 

This punishment, expect as a reminder to any entity using the financial system in their favour and inflate the company profits to the detriment of costumers and consumers in general.

Five years of manipulating exchange rates and gaining profit, in which these banks have won a lot of money. And of course the fine is less than the benefits obtained when continuing the scam.

How long will be waiting for the next abuse?

I’m afraid not much.