Minute-by-minute currency fluctuations mean that treasurers find it hard to predict the best time to buy, but the benchmarking system favoured by banks has got them into hot water for manipulating figures.
Last year, HSBC, JPMorgan, RBS, Citibank and UBS were all caught illegally fixing FX rates, and were fined heavily for the breach. Regulators were left pondering the problem of conflicts of interest that the situation creates (how do you ensure that traders set an accurate benchmark when they’re also the ones selling the currencies and mitigating their own risk?), while banks questioned how to guarantee a profit if their predictions turned sour.
According to insiders, banks are now in discussing an obvious solution: replacing their margins with a fixed cost. If the rumblings are correct, corporate treasurers will soon be asked to pay the benchmark rate, plus a fee.
It is thought that this could reduce traders’ temptation to try to overcompensate for risk with overpriced conversion rates, while ensuring a profit for banks.
Barclays, Deutsche Bank, JPMorgan Chase, Citigroup and Credit Suisse are all likely to introduce a fee for trades executed at WM/Reuters rates, including the 4pm London benchmark.