South Africa finds problems in FX trading but no misconduct by major banks

South Africa finds problems in FX trading but no misconduct by major banks

South African bank notes featuring images of former South African President Nelson Mandela (R) are displayed next to the American dollar notes in this photo illustration in Johannesburg August 13 2014.
Image by: SIPHIWE SIBEKO / REUTERS

An investigation into the South African foreign exchange market found instances of confidential client information being shared by foreign exchange dealers but no evidence of misconduct by major banks, the country's central bank said on Monday.

The South African Reserve Bank will look into stepping up surveillance to protect confidential client information and regulate foreign exchange dealers more closely, the bank said, following a year-long investigation.

"We were concerned that this would render the rand currency vulnerable to manipulation," Deputy Governor Daniel Mminele said.

Big moves on the foreign exchange market will now get closer scrutiny from the central bank, Mminele said. In addition, steps are under way to improve electronic monitoring of messages between dealers.

The bank's foreign exchange review committee, set up in October 2014, said regulation of traders who were dealing individually was insufficient. It recommended the authorisation and regulation of inter-dealer brokers be reviewed.

Monitoring of messaging between dealers, using systems that troll for catch phrases that indicate malpractice, were already in use by a few institutions, said the head of review committee, James Cross.

"The use of automated electronic systems is really just beginning to be used here, but one has to say there are some major institutions world-wide that are in intending on fully implementing that in 2016," Cross said.

A parallel investigation by the Competition Commission into the fixing of foreign exchange trades by several global banks was still under way, the bank said, and it would take action if irregularities were uncovered.

"The Competition Commission made known that they have information relating to what could possibly relate to unlawful conduct by certain international banks in relation to rand trading in offshore centres," Mminele said.

The competition watchdog announced that investigation in May, saying it was looking into alleged price rigging and collusion and naming BNP Paribas, Citigroup, Barclays, JP Morgan, Investec, Standard Bank and Standard Chartered ID:nL5N0YA35L]. No results have been announced yet.

The watchdog said it investigating whether dealers at the banks had colluded, using electronic chat rooms and instant messaging, to coordinate their trading when giving quotes to customers who buy or sell currencies. Similar investigations are underway in Europe, Asia and the United States.