EDITORIAL: Banks’ behaviour in forex collusion scandal is disturbing
SA’s banks are large and powerful corporate citizens that constantly proclaim themselves to be upstanding and committed to acting in the best interests of the country
The disclosure that currency traders in SA’s top banks have been accused of collusion with a host of other large international institutions should not be particularly shocking, given the similar scandals that have come to light in the financial capitals of the world.
The investigation into the South African side of the currency trades appears to have followed probes by the US department of justice, which has been looking into currency trading manipulation by international banks for some time. The Competition Commission’s own investigation started in 2015.
Although it should not be shocking to find that the same corruption and collusion may have taken place in SA, it is actually profoundly disturbing. SA’s banks are large and powerful corporate citizens that constantly proclaim themselves to be upstanding and committed to acting in the best interests of the country.
The commission says the respondents – specific individuals are named in person in the indictment – had a general agreement to collude on prices for bids, offers and spreads between them.
They manipulated the price by making agreements to refrain from trading or by timing their trades. They created fictitious trades to cover their tracks.
Even worse, it appears that traders from competing banks shared information on pricing and agreed on which bank would offer which price for a particular transaction.
This meant clients seeking to buy foreign exchange for large transactions were not getting a competitive deal.
If proven, it is no different at all from the construction companies that decided before the 2010 Soccer World Cup who would bid high and who would bid for various tenders to build the various stadiums.
While the collusion — which took place using the chat platforms of large, international financial news organisations — occurred between individuals, the banks themselves seemed remarkably unconcerned to investigate the practices or do anything about it.
While it worked for the traders who would hit high volumes by sharing out large deals between them, with the result that they would be rewarded with large bonuses, it also clearly worked for the banks.
There is a strong argument to be made that the banks incentivised collusive behaviour through the bonus system, which depended on volumes.
Of the banks named by the commission, only one – Absa – is not named as being liable for a fine equal to 10% of turnover, an indication that it had co-operated with the investigation. The bank has also suspended two employees, a sign that it views the investigation very seriously.
The Competition Commission’s announcement comes just as the big four banks are facing unprecedented political heat.
President Jacob Zuma has previously suggested that the banks colluded in closing the accounts of his friends,
More recently and more legitimately, he has bemoaned the high level of concentration in the sector in which the top four banks hold 90% of market share.
Parliament’s portfolio committee on finance is due to start public hearings next month to look at, among other things, market concentration.
With collusion among the banks now firmly in the spotlight, legislators will focus on regulation as well as market structure and empowerment issues with new vigour.
This is not a bad thing and if done in accordance with international best practice — as has typically been the case with regulation introduced in the post-1994 era — it should be good for the economy.