Forex rates might be brought under a global regulator’s purview, amid concerns over the recent benchmark-rate setting scandal, reports Bloomberg.

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Traders at some of the world’s leading banks have reportedly engaged in manipulative practices to rig forex rates. The banks’ employees have been accused of rigging WM/Reuters rates before and during the 60-second windows when the benchmarks are set.

A Madrid-based group, The International Organization of Securities Commissions (IOSCO), harmonizes market rules. IOSCO may propose final guidelines for improving transparency and oversight of benchmarks, including the WM/Reuters rates, as soon as next month according to Lindsay Fortado, Ben Moshinsky & Jesse Hamilton of Bloomberg quoting citing external sources.

FCA Probes Forex rates:

The U.K’s Financial Conduct Authority (FCA) is also reportedly considering opening a probe into the potential manipulation of the forex rates. The FCA is already working to review the integrity of benchmarks, including those used in valuing derivatives and commodities.

FCA’s spokesman indicated the regulator will review IOSCO’s recommendations, before deciding which rates to oversee.

In January, IOSCO proposed  that rates used in “currency markets, which can be represented by specific or aggregate benchmarks,” be subject to regular audits, stricter oversight from regulators and a code of conduct for submitters. It is anticipated the WM/Reuters rate would also be brought under this definition.

The Biggest in the Financial System

The currency market, with $4.7-trillion-a-day is the biggest in the financial system, though it is one of the least regulated.

Introduced in 1994, the WM/Reuters rates are extensively used by fund managers to compute the day-to-day value of their holdings and by index providers to track stocks and bonds in multiple currencies.  The forex rates are also used in forwards and other contracts. The data for the WM/Reuters rates are collected and distributed by World Markets Co., a unit of Boston-based State Street Corporation (NYSE:STT) and Thomson Reuters Corporation (NYSE:TRI).

However, World Markets has indicated that it doesn’t guarantee the accuracy of its rates. State Street has elaborated that the process for capturing this information and calculating the spot fixings is automated and anonymous, and the rates are monitored for quality and accuracy.

Spot forex transactions aren’t considered financial instruments in the same way as stocks and bonds. They fall outside the European Union’s Markets in Financial Instruments Directive, or Mifid, which requires dealers to take all reasonable steps to ensure the best possible results for their clients.

EU Response

The European Commission is considering whether to move oversight of Libor away from the U.K. to a Paris-based EU watchdog. Tensions between Britain and its EU partners about oversight of the financial industry have intensified after three banks were fined about $2.5 billion for rigging Libor.

U.S. Response

The Office of the Comptroller of the Currency regulates national banks in the U.S. This agency keeps an eye on forex trading at the banks it regulates to ascertain how the activity affects the larger health of the firms. The U.S. Federal Reserve does the same at the holding companies coming under its regulatory purview.  The Commodity Futures Trading Commission has some restricted power over forex enforcement.

The U.S. Treasury Department has come under fire in the wake of this week’s manipulation revelations. Last year, the Treasury excluded foreign-exchange swaps and forwards from certain regulations in the 2010 Dodd-Frank Act. However, the exemption is not applicable to spot markets.