Report on local forex dealing due soon

The South African Reserve Bank has promised to make its review of foreign exchange activities by local banks and other authorised dealers public, once a task team examining these operations completes its work.

It would also seek public input in the development of an envisaged market code of conduct stemming from the review, according to Hlengani Mathebula, group head of strategy and communication at the central bank.

The Reserve Bank’s review, which is being conducted in conjunction with the Financial Services Board, was launched in October last year. It came ahead of the announcement by the Competition Commission that it would investigate a number of banks for alleged price-fixing in their foreign exchange trade.

Although the investigations would overlap somewhat, the bank has said the commission’s probe does not stem from its review, which has to date found nothing “untoward”.

The Reserve Bank’s review, however, is continuing and “has not drawn any final conclusions yet”, Mathebula added.

End of the month
Former senior deputy governor James Cross is leading the committee conducting the central bank review, and it is expected to issue a report by the end of this month.

The committee has been tasked with reviewing past actions and making proposals for strengthening market conduct.

Mathebula said, although the bank has been in contact with all authorised foreign exchange dealers in South Africa, some banks, depending on the size of their activity in the local foreign exchange market, have been subject to more intense scrutiny than others.

Although the two investigations are separate, both the commission and the bank confirmed that the organisations have been co-operating with one another.

Mathebula said the bank and the board interact with various authorities, including the commission.


“Where feasible and appropriate, the [Reserve Bank] and the [Financial Services Board] will engage [with] other authorities,” he said. “In so far as the Competition Commission investigation and the [Reserve Bank] review is concerned, there has been a certain degree of information exchanged.”

‘Consulted and engaged’
Commission spokesperson Mava Scott echoed this, saying that the “commission has, indeed, consulted and engaged with relevant financial services institutions prior to the official announcement of the probe”.

The commission is investigating French bank BNP Paribas and its local arm, BNP Paribas South Africa; Citigroup; Citigroup Global Markets; Barclays Bank and Barclays Africa; JPMorgan Chase & Company; JPMorgan South Africa; Investec; Standard New York Securities, a division of Standard Bank; and Standard Chartered Bank.

According to the commission, alleged collusion was carried out through electronic messaging platforms used for currency trading, which enabled the respondents to co-ordinate their trading activities when quoting customers who buy or sell currencies.

“This co-ordination has the effect of eliminating competition among the respondents, as it enabled them to charge an agreed price for a specific amount of currency,” the commission said when it announced its investigation last month.

Despite the commission’s probe, the bank has seen no need to change the scope of its own review.

‘Terms of reference’
“The review committee’s terms of reference were defined at the start of the review, informed by the powers in terms of local legislation,” said Mathebula.

“In this context, there is no need to review the terms of reference.”

The bank said its review is not informed by indications of malpractice in the local foreign exchange market. Instead, it is “intended to confirm and, where appropriate, strengthen the level [of] adherence to best practices in foreign exchange dealing and minimise the risk of manipulation of benchmarks and sharing confidential client information, so as to enhance the transparency, efficiency and integrity of the South African foreign exchange market.”

Both the bank’s review and the commission’s investigation have come as international regulators have fined a group of banks, including some of those named in the South African probe, to the tune of almost $9-billion, for their conduct in the foreign exchange spot market.

Recently, deputy bank governor Kuben Naidoo suggested that the commission’s probe might have been as a result of a complainant or whistle-blower; however, these details had not been shared with the Reserve Bank for legal reasons.

At a release of the annual bank supervision report, Naidoo said that the banks were not aware of manipulation of the rand exchange rate. He said, however, that if a “misdemeanour” had taken place it “might have affected the rand exchange rate at the infinitesimal decimal point”.

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Lynley Donnelly
Lynley Donnelly
Lynley is a senior business reporter at the Mail & Guardian. But she has covered everything from social justice to general news to parliament - with the occasional segue into fashion and arts. She keeps coming to work because she loves stories, especially the kind that help people make sense of their world.
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