New York and London - US prosecutors were broadening their investigation of the foreign exchange industry as they questioned salespeople at the world’s biggest banks on their practices, said people with knowledge of the matter.
The Department of Justice had been asking bankers and clients how much sales teams charged customers to exchange currency, the people said, asking not to be identified as the interviews were private. The move is the first indication prosecutors are probing practices.
According to more than a dozen current and former salespeople and traders interviewed by Bloomberg News, it was common to charge what is known as a hard mark-up, tacking on a small margin for a salesperson’s services. Some clients who make currency deals rarely or in small amounts were known to pay little attention to the rates. The agency was scrutinising whether banks committed fraud by failing to disclose the practice properly to customers, the people said.
“Banks should always be transparent with their clients on pricing mechanisms,” said David Woolcock, the chairman of the committee for professionalism at ACI, a Paris-based group representing 13 000 traders in 60 countries who helped write the industry’s code of conduct.
“This does not sound like it is consistent with best practice nor ethical behaviour.”
The agency has interviewed sales staff with their lawyers at bank offices in the US over the past two months.
It was one of more than a dozen authorities in the world investigating the $5.3 trillion-a-day (R571 trillion) currency market following allegations that dealers at the world’s biggest banks traded ahead of their clients or colluded to rig the benchmarks that pension funds and money managers use to pay for foreign exchange.
Banks also have been digging through their own records and interviewing staff, including from sales, to show co-operation with the probes in bids for leniency should they lead to disciplinary action.
They were not required to provide time stamps showing when currency transactions were completed, as with equities, giving dealers an opportunity to mislead about the rate at which orders were executed. Spot foreign exchange transactions also fell outside the EU’s Markets in Financial Instruments Directive which required dealers to take all reasonable steps to ensure the best possible results for their clients.
Peter Carr, a spokesman for the Justice Department, would not comment on which banks were being investigated
Ex-employees said sales teams at Zurich-based UBS and Barclays in London were aware of which companies were considered unsophisticated about currency trades and charged them more. – Bloomberg