Categories: Business

Unveiling the Shadowy Practices in Financial Markets: A Dissection of Standard Chartered Bank’s Malpractice

Standard Chartered Bank has admitted to engaging in improper conduct in relation to the trading of the Rand/US Dollar currency pair, resulting in substantial penalties for the bank and raising doubts about market conduct. The National Treasury is committed to upholding the ongoing legal process and proposes additional legislation in 2024 to preserve the fairness and integrity of the South African financial markets. The proposed measures include introducing stringent governance, transparency, and conflict management requirements and broadening market abuse provisions to applicable security. The goal is to foster transparent, fair, and efficient financial markets and eradicate any form of malpractice and unjust treatment of customers.

Standard Chartered Bank has conceded to improper conduct in relation to the trading of the Rand/US Dollar currency pair, incurring substantial penalties for the bank and raising serious doubts about market conduct. The National Treasury upholds the ongoing legal process, free from intimidation, bias, or undue influence, and proposes additional legislation in 2024 to preserve the fairness and integrity of the South African financial markets.

Standard Chartered’s Transgressions – A Slipup in Market Conduct

Recently, Standard Chartered Bank has conceded to improper conduct in relation to the trading of the Rand/US Dollar currency pair. This reprehensible action, which the National Treasury finds deeply disturbing, has incurred substantial penalties for the bank and raised serious doubts about market conduct.

The South African Competition Tribunal introduced the settlement agreement with Standard Chartered Bank on November 15, 2023. The Tribunal affirmed that the bank had tampered with the prices of bids, offers, and bid-offer spreads in ZAR currency spot trades between 2007 and 2013. Far from being a one-off occurrence, it was a concerted attempt deployed through multiple communication channels, including instant messaging platforms.

The malpractice extended even further. The Tribunal discovered that Standard Chartered Bank traders distorted the trading process by assisting one another in locking trades before others, and providing each other with liquidity, thereby deviating from standard market procedures.

Such dishonorable practices have been met with stringent penalties. Standard Chartered Bank has consented to pay an administrative fine amounting to R42 715 880. Despite this confession, other banks under the Competition Commission investigation continue to deny any wrongdoing and ardently dispute the accusations.

The National Treasury’s Response – Upholding Market Integrity

Regarding this issue with utmost seriousness, the National Treasury upholds the ongoing legal process, free from intimidation, bias, or undue influence. It posits that if these allegations indeed hold true, it would highlight the dire condition of market conduct practices during that time.

Foreseeing the potential for such misuse, the National Treasury proposed and enacted the Financial Sector Regulation Act (FSRA) in 2011 as part of the Twin Peaks reform measures. This law introduced a new market conduct regulator tasked with ensuring that financial institutions adhere to ethical standards and treat their customers fairly.

The Treasury has also taken active steps to ensure that banks do not engage in unfair practices when setting reference rates, which are crucial in pricing derivatives and other financial contracts. Regulations proposed in March 2023 proposed to categorize the “provision of a benchmark” as a financial service under section 3(3) of the FSRA. It also stated that the Financial Sector Conduct Authority is in charge of supervising this financial service.

Future Legislation and Market Reforms – Paving the Way Forward

Moving ahead, the National Treasury aims to introduce additional legislation in 2024 to preserve the fairness and integrity of the South African financial markets. The Conduct of Financial Institutions (COFI) Bill suggests that Over the Counter (OTC) Derivative Providers come under the CoFI licensing activities and comply with the CoFI Act, thereby ensuring stringent governance, transparency, and conflict management requirements.

As part of the Financial Market Act Bill (FMAB), the reforms in the spot OTC market will be reconsidered. The participants in the OTC market will also need to adhere to the core COFI conduct requirements as per the FMAB review.

The draft FMAB, currently under preparation, proposes several substantial changes. It aims to include foreign currency in the definition of “security,” bring providers of OTC securities under FSRA as a license category, and broaden market abuse provisions to ‘applicable security.’

The measures undertaken since the malpractice of Standard Chartered Bank between 2007 and 2013, coupled with the proposed reforms, are a testament to the Government’s commitment to fostering transparent, fair, and efficient financial markets. The goal is to obliterate any form of malpractice and unjust treatment of customers.

However, it is essential to recognize that while Standard Chartered Bank’s actions did cause damage to individual clients, they did not influence the depreciating trend of the currency since 2013. The current value of the currency, depreciated against the dollar, is due to wider global and domestic economic changes, not past misdemeanors.

This sobering incident serves as a stark reminder of the enormous power wielded by financial institutions and the potential for misuse. Simultaneously, it attests to the resilience of regulatory bodies and their unwavering commitment to maintaining equitable, transparent, and efficient financial markets. For the health of the economy and the faith of the public, it is crucial that this commitment remains firm.

1. What did Standard Chartered Bank admit to doing wrong?

Standard Chartered Bank has admitted to engaging in improper conduct in relation to the trading of the Rand/US Dollar currency pair, resulting in substantial penalties for the bank and raising doubts about market conduct.

2. What penalties did Standard Chartered Bank incur for their improper conduct?

Standard Chartered Bank has consented to pay an administrative fine amounting to R42 715 880.

3. What legislation did the National Treasury propose in response to the improper conduct?

The National Treasury proposed additional legislation in 2024 to preserve the fairness and integrity of the South African financial markets. The proposed measures include introducing stringent governance, transparency, and conflict management requirements and broadening market abuse provisions to applicable security.

4. What is the Conduct of Financial Institutions (COFI) Bill?

The COFI Bill suggests that Over the Counter (OTC) Derivative Providers come under the CoFI licensing activities and comply with the CoFI Act, thereby ensuring stringent governance, transparency, and conflict management requirements.

5. What is the Financial Market Act Bill (FMAB)?

The FMAB aims to include foreign currency in the definition of “security,” bring providers of OTC securities under FSRA as a license category, and broaden market abuse provisions to ‘applicable security.’