Past “rotten culture” in FX is a reminder that trust is the ultimate asset

The global currency trading scandal started over ten years ago but it continues to ripple across the industry as news headlines keep investors’ memory alive.

The European Commission has recently fined Nomura, UBS, and UniCredit for their role in a wider cartel on government bonds which included Bank of America, Natixis, and WestLB. The total penalty for their actions between 2007 and 2011 amounts to €371 million.

The revelation that banks colluded for at least a decade to manipulate exchange rates for their own financial gain sent regulators in Europe, Asia, Switzerland, the United Kingdom, and the United States to investigate, announcing fines from 2014 onwards.

HSBC was fined $275 million by the CFTC and $343 million by the UK FCA, amounting to $618 million. The story isn’t over for the bank, however, as a trial at London’s High Court is about to rule on an alleged “blatant and indefensible” forex fraud that took place between 2004 and 2006 – 15 years ago.

The alleged victim, ECU Group, accuses HSBC and its FX traders of misusing confidential information about its trades for their own profit.

Front-running client orders is a practice that was pervasive for years, but a stricter regulatory framework that has been established since then is believed to have curbed this kind of market abuse.

As online FX trading rose to prominence in the late 1990s, quite a few rotten apples within the FX industry have made their business hurting retail traders and, as a side effect, the sector as a whole as customers became wary.

Regulation of FX and CFD products has come a long way since then and the emergence of external dispute resolution organizations has also contributed to building trust between traders and brokers.

“FX trading historically wasn’t aimed at retail clients and was reserved only to big players – banks and market makers. Things have changed and it is great that now almost anyone can get access to this immense market”, said Natalia Zakharova, Head of Business Development of FXOpen, a retail and institutional FX broker founded in 2003.

“The customers are also getting more and more knowledgeable and experienced. However, around 20 years ago when FX’s popularity was starting to grow most clients were not sufficiently informed about risks and fell prey to misleading marketing practices and shady brokers who manipulated the pricing, chased stops and resorted to insider trading”, Ms. Zakharova continued.

These days brokers constantly complain about regulators tightening their restrictions and suffocating them with new rules.

“This might be true, but on the other hand, the fact that brokers are required to report the trades, reveal their LPs and execution standards leads to better protection of the customers and, potentially, a more reputable and established industry”, she said, adding that the FX world can definitely recover from its history of market abuse and perhaps even become the industry defined by transparency and high business standards.