Biggest banks said to overhaul FX trading after scandals

The world’s biggest banks are overhauling how they trade currencies to regain the trust of customers and pre-empt regulators’ efforts to force changes on an industry tarnished by allegations of manipulation.

Barclays plc, Deutsche Bank AG, Goldman Sachs Group Inc., Royal Bank of Scotland Group plc and UBS AG, which together account for 43 percent of foreign-exchange trading by banks, are introducing measures to make it harder for dealers to profit from confidential customer information and take advantage of clients in the largely unregulated $5.3 trillion-a-day currency market.

Banks have capped what employees can charge for exchanging currencies, limited dealers’ access to information about customer orders, banned the use of online chat rooms and pushed trades onto electronic platforms, according to the people, who asked not to be identified because they weren’t authorised to discuss their firms’ practices.

“This is finally bringing the FX market into the 21^st Century,” said Tom Kirchmaier, a fellow in the financial-markets group at the London School of Economics who specialises in the governance of banks. “What we’re seeing is a modernisation of processes that probably should have been brought in 15 or 20 years ago.”

The banks are acting after authorities on three continents opened probes into allegations that dealers leaked confidential client information to counterparts at other firms and colluded to rig currency benchmarks used by money managers. US and UK regulators are in talks to settle some of the probes as soon as November. Prosecutors in the US are preparing to file charges against traders as soon as next month, two people with knowledge of the matter said.

The scandal may cost lenders as much as $15 billion in fines, according to Chirantan Barua, an analyst at Sanford C. Bernstein Limited. in London.

Regulators are probing allegations that traders shared data about orders with people at other firms using instant-message groups with names such as “The Cartel” and “The Bandits’ Club,” and with clients in a bid to win business. One focus is whether dealers sought to move the WM/Reuters rates in their favor by pushing through trades before and during the 60-second windows when the benchmarks are set.

Britain’s Financial Conduct Authority this year ordered banks to review their rules about conflicts of interest in the foreign-exchange market, a person with knowledge of the talks said. The regulator also plans to evaluate the controls that firms have over traders around the time benchmarks are set, according to its business plan.