Treasury notes worry SCB admission of wrongdoing – DOCUMENTS | Politics web
DOCUMENTS
Sovereigns are concerned about SCB’s admission of wrongdoing
Ministry of Finance |
November 26, 2023
The ministry will introduce legislation in 2024 to ensure that financial markets operate fairly and transparently
NATIONAL TREASURY NOTES CONCERN THE ADMITTION OF WORDNESS IN CONNECTION WITH CURRENCY TRADING
The Treasury notes with concern Standard Chartered Bank’s admission of wrongdoing in connection with its trading of the Rand/US dollar currency pair. In the settlement agreement issued by the South African Competition Tribunal (Case No: CR212Feb17/SA128Nov23) on November 15, 2023, the court confirmed the following:
“Between 2007 and 2013, respondents [Standard Chartered Bank] “Fixed prices of bid, ask and bid-ask spreads in relation to spot transactions of ZAR currency pairs through bilateral and multilateral communication through instant messaging platforms and other means of communication.”
The tribunal further confirmed that “Standard Chartered Bank’s traders assisted each other by allowing a trader with a large open risk position to complete his trades first before trading and by holding and/or withdrawing their trades in order to avoid the Reverse liquidity for each other instead of trading normally in the market.”
The National Treasury takes this matter seriously and welcomes the sanction under which Standard Chartered Bank agrees and undertakes to pay an administrative penalty of R42,715,880. While Standard Chartered Bank has admitted wrongdoing, other banks under the Competition Commission’s investigative committee have denied any wrongdoing and continued to deny the allegations. The ongoing legal processes must be able to proceed without fear, prejudice or undue influence.
The Ministry of Finance will respect the outcome of the proceedings before the Competition Court. If the claims prove true, they would indicate that poor market conduct practices were widespread at the time. This is exactly the type of abuse that the Treasury Department had in mind in 2011 when it proposed and implemented the Financial Sector Regulation Act (FSRA) as part of the Twin Peaks reform. The reform introduced new market conduct regulation to ensure that all financial institutions treat their customers fairly and operate to the highest ethical standards.
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In addition, the Treasury Department has put forward regulations to ensure that banks do not engage in unfair practices or misconduct in setting reference interest rates used in pricing derivatives and other financial contracts. In March 2023, the Treasury tabled a regulation in Parliament proposing to designate the “provision of a benchmark” under section 3(3) of the FSRA as a financial service and specifying that the Financial Sector Conduct Authority is the responsible authority for the same Regulation, supervision and supervision of the financial service of “providing a benchmark” under Section 3(5) of the FSRA.
In terms of section 288(1)(b) of the FSRA, which authorizes regulations to regulate procedural and administrative matters necessary to give effect to the provisions of this Act, the Financial Sector Conduct Authority is conferred with certain specific powers and duties in relation to the Providing benchmarks to enable effective regulation and supervision of financial services “providing a benchmark”.
The Treasury will introduce further legislation in 2024 to ensure South Africa’s financial markets are fair, transparent and operate with integrity. The Conduct of Financial Institutions (COFI) Bill provides that over-the-counter (OTC) derivatives providers will be included in CoFI licensing activities and will be subject to the CoFI Act. This means that the requirements of good governance, transparency and the management of conflicts of interest still apply.
The spot OTC market reforms will be considered as part of the review of the Financial Market Act Bill (FMAB). OTC market participants will also be subject to the core COFI conduct requirements as part of the FMAB review.
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The draft FMAB, which is under development, proposes the following: First, foreign currencies are included in the definition of “security”.
Secondly, providers of OTC securities are to be brought under FSRA as a licensing category, subject to the new FMA (this will be integrated into the FSRA) and the relevant conduct provisions under COFI.
Thirdly, the market abuse provisions are extended to “applicable collateral”, meaning:
(A) a security made available for trading on a trading venue or a foreign trading venue.
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(b) aa benchmark or derivative instrument that relates to, or whose price or value depends on, a security referred to in paragraph (a).
The reforms already undertaken since the Standard Chartered misconduct between 2007 and 2013, as well as the additional reforms proposed, demonstrate the Government’s commitment to fair, transparent and efficient financial markets and to tackling all misconduct and unfair treatment of customers.
However, while the misconduct described by the Competition Tribunal harmed individual customers, it would have had no impact on the currency’s devaluation trend since 2013, the extent of which is determined by broader changes in the global and domestic economy. The current value of the currency, which has depreciated against the dollar, and the resulting impact on prices should not be attributed to these instances of misconduct between 2007 and 2013.
Published by the National Treasury, November 24, 2023
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