7 Banks' Metal Trading Under Swiss Regulatory Scanner
Business misconducts and probes continue hand in hand for major banks. Now Switzerland’s competition regulator, commonly known as WEKO, is investigating precious metals (gold, silver, platinum, palladium and others) trading at 7 banks for alleged manipulation of prices.
Of the 7 banks, UBS Group AG UBS and Julius Baer Group AG are based in Switzerland, while the others are Deutsche Bank AG DB, HSBC Holdings PLC HSBC, Barclays PLC BCS, Morgan Stanley MS and Japanese trading house Mitsui & Co.
WEKO is examining allegations of collusion between banks to coordinate precious metal prices and manipulate the spread (difference between bids and asking prices). Per a statement by WEKO, “It (WEKO) has indications that possible prohibited competitive agreements in the trading of precious metals were agreed among the banks mentioned.”
Notably, other banks could be added to the above-mentioned list of firms under probe, if WEKO finds “cause for suspicion”. The regulator is expected to conclude the probe in 2016 or 2017. Banks, if found guilty, will be facing huge financial penalties.
Swiss investigation into precious metal trading manipulation come after the U.S. Department of Justice (“DOJ”) and the Commodity Futures Trading Commission (“CFTC”) as well as European Union (“EU”) separately started their own probes earlier in 2015.
Around 10 banks are under the DOJ and the CFTC scanner since last February, including HSBC, JPMorgan Chase & Co. JPM, Credit Suisse Group AG CS, Barclays, Deutsche Bank, The Goldman Sachs Group, Inc. GS, The Bank of Nova Scotia BNS, SociétéGénérale SA, Standard Bank Group Ltd. and UBS Group AG. On the other hand, the EU, which began investigation in August, is looking into alleged ““anticompetitive behavior” of banks in precious metals spot trading.
Banks’ physical commodity businesses have already been under scrutiny for quite a long time. Several banks have been penalized for manipulating financial benchmarks and the foreign exchange markets.
Further, many banks are moving away from physical commodity businesses owing to lower profitability and heightened regulatory attention. At present, companies who still conduct physical commodity businesses are required to shift toward automation in a bid to improve transparency and prevent manipulation.
We believe that banks may have to dole out millions to settle these accusations, similar to settlement deals regarding alleged manipulation of other benchmark rates like interest rates and FX. Such setbacks could impact the banks’ financials, thus hampering growth.
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