Just when we thought the rigging of one of the biggest number in banking in 2012 is one scandal which is past and over for the global financial markets, in came the FOREX scandal.
The Libor scandal was a series of fraudulent actions connected to the deliberate fixing of LIBOR (London Inter-bank Offered Rate) by major banks through a colluded cartel to influence a $350 trillions market. Instead of submission of independent and unbiased estimate of daily LIBOR based on the actual or expected rate that individual member bank will borrow or lend to each other, major banks colluded to falsely inflating or deflating their rates so as to profit from trades. The pervasiveness of this scandal across major banks sent shock waves down the global banking sector and lead to the demise of LIBOR. A record $6 billions fine was dished out by various financial regulators to multiple major banks with the rippled aftermath effects of shaking trust in global banking system.
Less than 1 year after the LIBOR fiasco, 6 major banks were fined a total of $4 billions for 6 years for the period 2008 to 2013 for rigging key forex benchmarks, acting in cartels as “the players”, “the 3 musketeers” and “a co-operative” in a seemingly similar LIBOR fixing fashion.
With the recent forex class action seeking go-ahead approval by specialist British court, major banks are bracing themselves for multi-billion-dollar class actions by investors, pension funds and assets managers looking for blood.
The forex scandal will not be the last to be seen by the global banking system and the question is how have we learnt from it. Let recall some of the earlier learning from the following recommendations following the LIBOR review by FCA:
- Strengthen governance and oversight
- Identify and manage conflicts of interest;
- Identify benchmark activities across all business areas;
- Establish oversight and controls for any in-house benchmarks and
- Implement appropriate training programmes.
The panacea to financial fraud is not too different from corporate fraud, it is good old governance, management of conflicts of interest, oversight and internal control and staff training. However, it is the effective and consistent execution by the human behind the execution which is difficult. Until the banking industry nailed this talent management, scandals will happen and lessons will be learnt. LIBOR out, FOREX in. What’s next ?