A U.K. investigation into potential manipulation of currency markets is looking at a former trader at Royal Bank of Scotland who participated in electronic chat sessions with traders at other banks.
Richard Usher, JP Morgan’s most senior currency trader in London and a member of the Bank of England committee took part in the chat sessions with top traders from various financial institutions when he was an employee of RBS. The group of traders in the chat rooms were known by various nicknames including “The Bandits’ Club,” and “The Cartel.”
The investigation of possible manipulation of foreign-exchange markets got under way over the summer when the U.K.’s Financial Conduct Authority opened an inquiry in response to concerns voiced by industry officials.
The FCA are examining the potential manipulation of a £3.32 trillion-a-day market, which could have affected the value of people’s savings and pensions.
This month, the Swiss markets regulator, Finma, said it was conducting its own inquiry in concern with other regulators, and that “multiple banks around the world are potentially implicated.” In the U.S., the Federal Bureau of Investigation has also begun a criminal investigation into possible rigging of currency markets.
RBS started digging through its records to look into potential foreign-exchange manipulation by its traders around the same time that the FCA began its inquiry, according to reports.
RBS unearthed materials that indicated that Mr. Usher participated in the electronic chat room with colleagues at other banks and, following its policy of alerting regulators when it finds signs of potential misconduct by employees, handed over those chat records involving Mr. Usher to the FCA.
Investigators are looking at the practice of currency “fixes”; daily snapshots of prices for currencies that are used by money managers and others for valuing portfolios, among other purposes. The fixes—the most popular is at 4 p.m. London time—are computed based on market activity during a brief window.
The foreign-exchange investigation comes after RBS last February settled U.S. and British allegations that its employees tried to rig the London interbank offered rate, or Libor, and other market benchmarks.
J.P. Morgan also is a subject of U.S. and British Libor-rigging probes. It was one of 10 financial institutions whose employees allegedly conspired to manipulate rates, the U.K.’s Serious Fraud Office says. Its London operations have been under intense scrutiny since last year due to roughly $6 billion of losses racked up by traders.
J.P. Morgan hired Mr. Usher from RBS in 2010 and remains employed by the New York-based bank.
It is not known how many traders are having their messages scrutinised, but banking sources expect more names to be revealed in the next few weeks.
