George Osborne is to set out plans to clean up London’s vast foreign exchange (forex) market, with new criminal sanctions for traders who engage in abuse and malpractice.
The Chancellor will use his annual Mansion House speech to promise a crackdown to deal with the “unacceptable behaviour of the few” in order to protect the integrity of the City as a whole.
He will say that new criminal penalties introduced in the wake of the Libor rate-rigging scandal will be extended to cover the forex market as well as the fixed income and commodity markets.
At the same time he will launch a 12-month joint review by the Treasury, the Bank of England and the Financial Conduct Authority (FCA) into the way key wholesale financial markets operate.
The moves come as regulators around the world – including the FCA – continue to investigate the alleged rigging of the forex market which is worth £3 trillion a day globally.
FCA chief executive Martin Wheatley told MPs in February the allegations were “every bit as bad” as the Libor scandal which has already cost the banks billions in penalties in relation to the fixing of the rate at which banks lend to each other.
The Commons Treasury Select Committee was told that at least 10 banks had been drawn into a major investigation launched last autumn by the FCA.
In his speech, Mr Osborne is expected to say: “The integrity of the City matters to the economy of Britain.
“Markets here set the interest rates for people’s mortgages, the exchange rates for our exports and holidays, and the commodity prices for the goods we buy.
“I am going to deal with abuses, tackle the unacceptable behaviour of the few and ensure that markets are fair for the many who depend on them.”
The Fair and Effective Markets Review will be led by the new Bank of England deputy governor for markets and banking, Minouche Shafik, with Mr Wheatley and Charles Roxburgh, the Treasury’s director general of financial services, as co-chairs.
Officials said that its remit would include “the scope of regulation, the role of industry standards, and the need for additional supervisory resources to address any issues that arise”.
Mr Osborne will rule out Britain opting in to European Union rules on market abuse, arguing existing UK regulations are at least as strong, if not stronger, although officials acknowledged there may be measures which would require international agreement.
The BBA, representing the UK’s banking sector, said that while it was important to preserve the integrity of the City, the authorities must be sensitive to the need to continue to attract international banks and investors.
“The UK already has one of the toughest regulatory regimes for banks anywhere in the world. If got right these proposals would be a sensible extension of that system,” said BBA chief executive Anthony Browne.
“The key task for the review will be ensuring that we have a system that is robust and punishes any wrongdoing while being sensitive to the need to continue to attract global banks and investors to the UK.”
For Labour, shadow Treasury minister Cathy Jamieson said the Chancellor’s review was “too little, too late”.
“We pressed ministers to regulate commodities markets and the full array of financial benchmarks back in 2012, but the Chancellor failed to act,” she said.