British MPs urge watchdog to probe price rigging in gold market


By Sam Fleming and Daniel Schafer
Financial Times, London
Wednesday, July 2, 2014

British MPs have called on the UK's financial watchdog to investigate allegations of price-rigging in the London gold market after a senior regulatory executive said that there may have been co-ordinated attempts to manipulate a crucial benchmark.

Members of the influential parliamentary Treasury select committee pressed the Financial Conduct Authority to act after hearing evidence on Wednesday from gold market analysts who believe there is scope to rig the daily price-setting process and that it has probably been exploited frequently.

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"If this evidence is even half true, the regulators need to find a way of acting much more quickly," Andrew Tyrie, chairman of the committee, said. "Were they to conclude that their powers are inadequate, they should tell parliament."

The London gold fix is a twice-daily auction process, controlled by four banks, that is used by everyone from central banks to jewellers and gold miners to set a reference price for bullion. It came under renewed scrutiny this May when the FCA fined Barclays L26 million for price rigging by an options trader.

The watchdog so far has not launched a broader probe into the gold fix's panel members -- which include Barclays, HSBC, Scotiabank, and Societe Generale and formerly Deutsche Bank.

David Bailey, head of markets infrastructure and policy at the FCA, said it was "possible" that the banks on the panel could have colluded to manipulate prices.

"But I have no clear evidence that this has actually happened," he told the hearing, which focused on possible of manipulation of financial benchmarks ranging from Libor interbank lending rates to foreign exchange rates and the gold fix.

Two experts testified that the possibility of abuses in the gold market had been evident for a while.

Rhona O'Connell, head of metals research and forecasts at Thomson Reuters, said there are potential conflicts of interests among the panel banks who control the auction, because they both act on behalf of clients and trade on their own books.

Alberto Thomas, partner at Fideres, a consultancy group, said that the whole rate-setting process was flawed because it allowed information to be constantly leaked to brokers and clients.

"Effectively you have got massive potential for insider trading," he said. "It does not have a good governance, there is no way to audit what is happening in the call, and there is no data transparency."

Mr Thomas and Ms O'Connell agreed when members of parliament suggested that the regulator had been "slow out of the traps" when dealing with potential problems beyond the Libor market.

Quizzing Mr Bailey, John Mann, a Labour MP, said there was a "flawed and manipulable market" that needed to be sorted out by regulators.

Mr Bailey insisted that the FCA did not regulate the gold fixing process but that any changes to the gold fix should follow robust international standards adopted in the wake of the Libor rate fixing scandal.

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