Savers are the only losers in the latest round of bank fines, says Dr Peter Hahn of London’s Cass Business School. And for some banks, it is starting to look too easy to hand over shareholders’ money.
“People’s savings in mutual funds have been whittled away by FX dealers due to poor controls in the asset management business. The same banks are likely to have been cheating customers every time they use their credit cards abroad. Yet, the guilty banks will be paying the government a fine for their misdeeds, which reduces the value of the banks’ shares in pension fund trackers – meaning consumers lose again. Would someone point out how consumers benefit from these fines? Where is the reparation?
“It seems savers are the only losers. The fines will hit ordinary people’s pension fund trackers as bank share prices fall. Regulators score a feather in their cap, the government’s coffers get filled and senior bankers get away with seemingly admitting they don’t understand their businesses at ground level while collecting seven figure salaries. The latter may forgo some of their bonuses, but these are small sacrifices in the world of total pay. For some banks, it is starting to look too easy to hand over a little more of shareholders’ money. Perhaps it’s time to ask some more fundamental questions about the limitations of bank management?
“The manipulation of FX is inexcusable. But it also appears as if most of the investigative work of Europe’s regulators was conducted by the banks themselves, who will undoubtedly blame the most recent and most junior employees they can find. Who is running the investigations? Who hired who to do so? Will anyone ask ‘where did the most junior employees learn it from?’ Sadly, I’m sure the trail won’t lead up very far. Fortunately for those at the top, chat rooms, seemingly the principal evidence trail, haven’t been around that long. FX is supposedly the world’s largest trading market – why wasn’t anyone overseeing it? Perhaps our focus on benchmarks is all wrong – instead of trying to make them perfect, transparent, and permanently embedded for some new type of abuse – we should be asking why we use them at all?”
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Banks need to ask themselves whether a barrow boy culture is appropriate for the world’s biggest market, says Professor Andre Spicer of London’s Cass Business School.
“Investigations into forex market reveal a culture of collusion in the world’s biggest market. They show currency traders in each bank were more loyal to each other than they were to their clients or their employers. This was due to a strong trader culture. Questionable behaviour was seen as the norm across the market. Because there was little or no oversight, no one questioned this behaviour. The market is opaque which makes it hard for outsiders to get a sense of what is actually going. When concerns were raised by whistleblowers, they were either ignored by the banks or not escalated to higher levels.
“Forex traders had an unofficial code of ‘ethics’. It was based on keeping the market liquid, responding to each other almost instantly and in some cases being loyal to their own clique. If you didn’t follow these rules, you could be frozen out. This code benefited the traders, but failed many others. It has cost banks hundreds of millions in fines. It has cost clients in inaccurate prices. It has also undermined wider public trust in the world’s largest market.
“The design of the Forex market made it a hothouse for growing bad behaviour. Astonishing amounts of money are at stake. There are almost no rules, no policing and no transparency. There are only a handful of players who matter. They all know each other intimately. They have often worked in the same trading desks in the past and frequently socialise with each other. They used the same salty language heard more often among street market traders than highly paid professionals responsible for millions of pounds. Some were members of trading clubs which had names which seemed like they had been invented for a team on ‘The Apprentice’
“The problem with the Forex market is not bank culture. It is market culture. Changing this market culture is going to be tough. Banks have already fired many of the worst behaved individuals. They have also increased risk and compliance functions. Chat rooms have been eliminated and trading has been automated. Regulators have announced a number of inquiries. Some individual traders will be held to account. However, addressing the root causes of this problem will involve making the market more transparent, putting into place some basic rules, and ensuring the market is policed effectively. Banks also need to ask themselves whether a barrow boy culture is appropriate for the world’s biggest market.”