Comment On UK's Serious Fraud Office Opening Probe Into Foreign Exchange Market By Warwick Business School Dean, Professor Mark Taylor

Commenting on the Serious Fraud Office opening a probe into the foreign exchange market Warwick Business School Dean, Professor Mark Taylor, said: “It is imperative that the integrity and reputation of financial markets and the City of London in particular is kept in tact, so this is a welcome move by the Serious Fraud Office.
 
“The manipulation of the London 4pm Fix doesn’t just affect banks and traders, but the man in the street as well, as it is our pension and insurance funds that could be swindled out of millions of pounds by this.
 
"If some of the big players in the market got together and put through some very large trades - billions of dollars each - then that could affect the market, so they can charge their clients a higher rate before covering it a few minutes later to make a healthy profit. You only have to move the market a small amount for a short period, and that could be worth millions of dollars for the banks.
 
“Collusion between traders to move the 4pm fix will be difficult to prove, but the chat rooms used by traders could be the key for investigators.
 
“These allegations have yet to be proved, but if the Serious Fraud Office does find them to be true, it will strike at the heart of business ethics. It would be yet another blow to the integrity of the banks. Our pension funds invest billions of pounds in the financial markets and if they are being cheated in this way it affects every one of us.
 
“The foreign exchange market is massive and it is by definition global, making it very hard to control and oversee. Also, the incentives to cheat are still massive, even when there is regulation in place. If we really want to make sure the foreign exchange reference rate isn’t rigged, we need to remove the incentives to cheat.
 
“One solution would be to take away the temptation by taking the average over an hour - so 30 minutes either side of 4pm rather than 30 seconds. It’s a simple, workable solution because it would be a lot harder, if not impossible, to move a market as big as the FX market for an hour. Removing the incentive is much better than regulation because of the global, decentralised nature of the foreign exchange market.”