Treasury concerned at banks price fixing allegations

Pretoria - National Treasury has expressed concern on the outcomes of the Competition Commission’s investigation into price fixing and market allocation by 17 banks, saying it views the matter in a serious light.

Announcing the findings of the investigation, the Commission said 17 banks, including three South African banks that have an international footprint, were implicated.

“As the Competition Commission indicated in its statement, the matter has now entered a new phase in which … the banks [will have] an opportunity to answer for themselves at the Competition Tribunal. This process must be allowed to run its course without fear, prejudice or undue influence,” said National Treasury on Thursday.

Treasury said it views the matter in a serious light and it respects whatever outcome of the Competition Tribunal.

“If proven to be true, it would confirm the pervasiveness of unbridled greed within the ranks of the forex trading sections of banks, even after evidence that such behaviour has the potential to collapse national and global financial systems and bring about immeasurable pain to ordinary people, as evidenced by the deep recession of 2008-09, which was triggered by banks conducting their business recklessly.”

In its statement on Wednesday, the Commission said it has been investigating a case of price fixing and market allocation in the trading of foreign currency pairs involving the rand since April 2015. The Commission has now referred the case to the Competition Tribunal for prosecution.

The Commission found that from at least 2007, the banks had a general agreement to collude on prices for bids, offers and bid-offer spreads for the spot trades in relation to currency trading involving the US dollar/rand currency pair.

Further, the Commission found that the respondents manipulated the price of bids and offers through agreements to refrain from trading and creating fictitious bids and offers at particular times.

“It should be noted that these allegations, if proved to be correct, point to poor market conduct practices at such offending institutions. This is precisely the type of abuse National Treasury had in mind in 2011 when proposing the coming Twin Peaks reform to put in place a new market conduct regulator to ensure that all financial institutions treat their customers fairly and operate with the highest ethical standards,” said Treasury.

Global banks misconduct

Treasury explained that the South African Reserve Bank is a prudential banking supervisor, and not a market conduct regulator, and that no market conduct supervision was in place during the period in question in 2007 and after for the period that the Competition Commission alleges such misconduct.

Internationally, serious misconduct by several global banks in the foreign exchange markets came to light in 2013, following steps taken after the 2008 global financial crisis. The first such penalties were imposed by the US Department of Justice in May 2015 against six banks for more than $5.6 billion. The activities in question internationally have often been driven for short-term exchange rate gain (often by rogue traders) rather than long-term currency manipulation, and do not seem to have had and do not seem to have had a significant impact on currency levels.

Treasury said South Africa’s financial sector regulatory reform process is well-underway.

“Twin Peaks will create a dedicated market conduct regulator, with scope of responsibility across the financial sector to cover market conduct issues in both the retail and wholesale market. These regulators will support the achievement of proper competition outcomes in the sector.

“National Treasury will ensure that both Treasury and all financial sector regulators will support the Competition Commission in any way possible should it request such assistance. We are aware that the South African Reserve Bank is also ready to do so,” said Treasury.

Earlier this week, the Reserve Bank said while it notes the allegations in a serious light, it will allow the legal processes to run their course. In addition the central bank said it will continue to monitor developments closely to inform any action that it may need to embark upon in accordance with its mandate and jurisdiction. – SAnews.gov.za