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‘Rate-rigging’ traders still at work

Many of the traders identified in the Competition Commission’s currency-rigging case against major banks are still employed by them, and some are still on the banks’ trading floors.

The commission is seeking to fine 17 banks heavily for their hand in allegedly colluding to manipulate the rand-dollar currency trade over eight years. Those implicated include Absa, Standard Bank and Investec, as well as international banks such as the Citibank Group, JPMorgan Chase, BNP Paribas and Standard Chartered.

If the scandal unfolds as other rate-fixing scandals have over recent years, it is unlikely the collusive behaviour was explicitly sanctioned by those higher up in the banks, although in many cases fairly senior personnel have been implicated in the commission’s referral document.

At Standard Bank, the head of foreign exchange trading, Richard de Roos, and an experienced trader, Bryan Brownrigg, have been implicated. Both answered their phones at the Standard Bank trading desk this week but said they were unable to comment. Standard Bank said no suspensions had taken place.

At Absa, five local traders are implicated. The Mail & Guardian understands that the bank, which co-operated with the commission and has received immunity, has suspended two senior traders implicated in the matter — Duncan Howes and John Daly. The other traders, Thulani Kunene and Premal Bhana, are still employed by the bank but it is understood an internal investigation cleared them of any wrong-doing. Elaine Naidoo was also cleared but has left.

At Investec, only one bank employee, Clint Fenton, is implicated and he remains employed. Inside sources confirmed his presence in the Investec offices this week.

Fenton’s Linkedin profile describes him as a head trader at the bank, but his registration with the JSE as a currency derivatives dealer was withdrawn by the bank in July last year.

Investec spokesperson Ursula Nobrega said Fenton was in the office but was not trading. “We have been given no evidence as yet … We hadn’t received any information until the commission referred the case on [last] Thursday,” Nobrega said.

Although the bank complied with the Reserve Bank’s code of conduct, the alleged misconduct goes back several years and it will take time to go through an internal process to examine what the commission is alleging, she added.

Nobrega said Investec was bound by its duty to treat its customers and its employees fairly.

For the implicated banks, the worst possible outcome is the maximum penalty of 10% of annual turnover. Whether this is 10% of the trading desks’ turnover, the turnover of the banks’ South African operations or their global turnover will be at the discretion of the tribunal, the commission has said. It is also up to the tribunal whether the fine will be levied for just the past financial year, or for every one of the eight years in which misconduct allegedly occurred.

But the market seems little concerned by the events, with the share prices of Barclays Africa, Standard Bank and Investec dropping only slightly in the days that followed the news of the commission’s case referral.

For the individuals, the worst sanction they face in South Africa is to lose their jobs. But there is also a chance the United States authorities could come after them.

Anthony Crane, a partner of the law firm Dentons South Africa, said the banks would certainly take disciplinary action against an employee who deliberately or negligently breached the Competition Act and the employee could be fired.

Martin Versveld, a partner in the competition practice at Webber Wentzel, said there was no risk that the individuals faced criminal charges. The Act only criminalised conduct that happened after May  1 last year, when the Act was amended.

“They [the South African traders implicated] could, of course, face criminal sanctions in other jurisdictions, such as the US,” Versveld said.

The US has charged three traders based in the United Kingdom in other, related cases of foreign-exchange rigging.

According to the US department of justice, quoted in the Financial Times last month, the charges carry a maximum penalty of 10 years in prison and a $1-million fine. “The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by victims if either amount is greater than $1-million,” the department said.

There is also a possibility that the implicated banks will settle with the commission for an amount that is likely to be far less than the penalties sought.

The CitiBank Group has agreed to pay a R70-million settlement fee and will provide witnesses to assist in the prosecution of the other banks.

Versveld said the terms of the settlement have to be confirmed by the tribunal. He said the other parties can settle with the commission at any stage until the tribunal has made a final determination on the merits of the commission’s complaint.

Domestic investigation yielded warning signs

The foreign exchange review committee, established by the South African Reserve Bank and the Financial Services Board,  reported in 2015 that the trade of foreign exchange in South Africa was competitive.

It found no evidence of collusion or the manipulation of any foreign exchange benchmarks, but cases of forex dealers sharing confidential client information were noted.

It said South Africans with licences to deal in forex appeared to have acceptable governance arrangements, but noted some policies had been implemented recently as a result of an increased focus on market conduct globally.

But the banks did not routinely monitor the communications of their foreign exchange dealers.

“The majority of the authorised dealers had difficulty in retrieving some of the requisite records for their internal investigations. Provided that the existing policies and procedures are rigorously applied, misconduct involving forex dealers should not go undetected,” according to the report.

It noted that no institution took responsibility for monitoring market conduct in the domestic forex market. But this would be addressed by the pending financial sector regulation, Twin Peaks. It advised that some provisions of the Financial Markets Act should be extended to include forex trading.

After last week’s Competition Commission referral, the Reserve Bank said some of the recommendations were being implemented. — Lisa Steyn

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