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Banks to face stricter forex fixing rules if reform lags: Financial Stability Board

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The rates for the fixings are at the centre of a global investigation into alleged market manipulation that saw six major banks fined US$4.3 billion last year.

[SYDNEY] Financial institutions involved in the London fixing of foreign exchange rates must do more to reform their practices or risk having stricter rules imposed upon them, a top regulator warned on Thursday.

Guy Debelle, deputy governor of the Reserve Bank of Australia (RBA) and co-head of a global body established to reform the scandal-tainted fixings, said there was a "strong expectation" that its guidance would be followed. "If these recommendations are not implemented, then the likelihood of a regulatory response will increase," Mr Debelle said in a speech in Sydney.

The global regulator, the Financial Stability Board, last September made a range of recommendations aimed at cleaning up the fixings, which used to set reference values for thousands of contracts worldwide.

The rates for the fixings are at the centre of a global investigation into alleged market manipulation that saw six major banks fined US$4.3 billion last year.

One step was for the WM Company, a unit of State Street which calculates the fixings, to widen the window over which the calculation is made. WM is set to expand that window to five minutes, from just one minute, on Feb 15.

Mr Debelle said progress elsewhere had been more patchy. One proposal for banks to charge their clients for fixing services had only been taken up by some institutions so far.

"So long as some dealers remain willing to not charge directly for this service, competitive forces mean that it is difficult for others to charge," said Debelle. "If the fixing service is not directly and transparently charged for, the incentive for inappropriate behaviour remains."

The FSB also recommended that banks and other currency dealers separate their fixing business from their regular dealings, particularly regarding the sharing of information. "Some banks have implemented this recommendation over recent months but adoption has been somewhat mixed," said Mr Debelle.

"There has yet to be significant progress in terms of the pricing and execution of the fix business within institutions."

REUTERS