SINGAPORE — Following a global crackdown on currency rate rigging, Singapore’s central bank has censured 20 banks. These banks have been ordered to set aside additional reserves for a year by the nation’s financial watchdog.
The Monetary Authority of Singapore (MAS) conducted a probe, which revealed that 133 traders were guilty of rate-rigging key borrowing and currency rates. The probe conducted by Singapore’s financial watchdog is one among the many investigations that have been going on all across the world, where big names from the banking industry such as ING and Bank of America, are being added to the list of lenders accused of influencing borrowing and currency rates.
According to the MAS’s decision, banks such as Union Bank Switzerland, Royal Bank of Scotland and International Netherlands Group would each have to set aside close to S$1 billion ($800 million) and S$1.2 billion extra with the central bank as additional reserves. This money would be returned to them if the necessary remedial actions were taken on the part of the banks.
At present, the financial market reference rates have been under scrutiny globally as a result of a widespread rate rigging scandal. Among one of the first banks to be discovered carrying out the malpractice was Barclay’s. The London Inter Bank Offered Rate (Libor) set by the British Bankers’ Association (BBA) is considered to be one of the most important interest rates in the financial sector. These rates are a benchmark for a vast proportion of daily transactions. However, between 2005 and mid-2012, Libor rates were fixed by traders at Barclays.
This scandal has had tremendous global implications and is being investigated by financial regulators from all over the world. Reports of probes show that the scandal is not limited to Libor alone. The manipulation carried out by Barclays alone extended from London to New York and Tokyo, which illustrates the tremendous geographical reach of the impact of this scandal.
Singapore’s banking and market associations have set up reform methods for banks to follow. This includes setting the benchmarks, notable features of which include basing some of them on actual trades as opposed to the depending on the banks to submit estimates. With similar steps being taken by the United States and Europe, dependency on actual trade seems to be a viable solution at present.
Image Courtesy: Aleksandr Zykov (http://commons.wikimedia.org/wiki/File:Singapore_banknotes_-_20120205.jpg)