Benjamin Lawsky puts Barclays and Deutsche Bank FX algorithms under the microscope

Keen-eyed intrepid New York financial markets regulator Benjamin Lawsky has reportedly uncovered evidence that Barclays and Deutsche Bank, two of the major financial institutions implicated in the recent $3.3 billion financial penalties handed down by Swiss, British and Federal US regulators for FX rate manipulation, had possibly used algorithms on their trading platforms to manipulate foreign-exchange rates.

According to a report by Bloomberg, the practice suggests there may be a systemic problem involving automated tools that goes beyond individuals colluding to manipulate currency benchmarks and take advantage of less sophisticated clients.

Currently, New York State’s investigators are looking into the practice at each bank and it isn’t clear if there’s a link between the two, according to the person, who asked not to be named because the matter isn’t public. The algorithms were embedded in Barclays’s BARX trading platform and Deutsche Bank’s Autobahn system, according to the report by Bloomberg.

Mr. Lawsky, a prominent lawyer and New York State’s first Superintendent of Financial Services, is renowned for his insight into potential transgressions, having investigated Standard Chartered Bank and accused the bank of conducting secret money laundering transactions with Iran, triggering a 23.5% drop in share price.

On August 14, 2012, Standard Chartered Bank agreed to pay a fine of $340 million (£220 million) to the New York State Department of Financial Services, conceding that $14 million in financial transactions involving Iranian parties were in violation of U.S. banking laws. On June 18, 2013, the Department announced that Deloitte Financial Advisory Services LLP (“Deloitte FAS”) was fined $10 million and banned from advising banks in New York for one year after accusing the firm of watering down a report about money-laundering controls at Standard Chartered.

Mr. Lawsky is as astute with regard to regulatory investigations as he is with assessing the benefits of regulating new financial technology, having taken the initiative to implement a regulatory structure for virtual currency in New York, designated “BitLicense” which has opened up New York’s technological development potential and encouraged large venture capital investments into Bitcoin exchanges.

Should Mr. Lawsky’s investigation conclude that banks used automated systems to manipulate prices, the current array of criminal investigations into the conduct of individual traders who discussed and carried out rate manipulation between each other could be extended to the institutions themselves.


For the report from Bloomberg, click here.


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