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  There is a plethora of ways, available for ‘’dealers’’ to influence and or/collude on exchange rates. My old friend Barry Sergeant is indeed rolling around in his grave. His book, ‘’The Assault on the...  

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Forex prosecution: SA needs swift resolution

Political fallout could affect the whole banking sector.

The announcement that 17 banks have been referred to the Competition Tribunal for the prosecution of alleged collusive forex practices on Wednesday did not really come as a surprise, but the timing could not have been worse.

The Competition Commission announced two years ago that it had begun an investigation. This follows the pattern of similar investigations and prosecutions in Europe and the United States – some of which resulted in large international banks – several of which were implicated in the South African case – paying more than $10 billion in fines and settlements.

Despite the fact that this case is not unique to South Africa, it is a big one.

Reaction

Typically, while Twitter erupted with aggressive condemnation of the alleged transgressions, the JSE’s reaction was more mooted.

The announcement was made just after three, and hardly caused a blip in the banking index. Standard Bank ended the day nearly 1% stronger, while Investec shed 2.5%, although the bank seemed to have suffered these losses prior to the announcement. (Hopefully, Mr. Market’s immediate reaction translates into a longer-term trend.)

But this case could not have come at a worse time for the local banking industry.

Local banks have recently been dragged into a political crossfire after they closed the Guptas’ bank accounts. They have also been subjected to severe criticism, from among others the president, on their perceived absolute control of the economy. It is therefore not inconceivable that criticism of the whole sector could intensify, despite the fact that only the forex divisions of two local banks – Standard Bank and Investec – are in the crosshairs (no penalties are sought against Absa, which came forward first and applied for corporate leniency).

The reason is that South African banks have always been heralded as the custodians of a very advanced and respected financial services sector – both locally and internationally. It is also regarded as South Africa’s flagship economic sector and one of the (most stable) pillars of our economy. (I can see the late Barry Sergeant turning in his grave.)

This is also why the political fallout could be so significant. The first signs emerged within minutes of the announcement when the term “currency capture” was coined.  Many political commentators were highly critical and accused the sector of being hypocritical.

The ANC also issued a statement late on Wednesday night confirm this view. The statement read: “The African National Congress takes an extremely dim view of the activities of the listed banks, understanding the banking sector as being instrumental to our quest for economic growth and development. .. The profit-driven assault on the South African rand through such collusion and corruption by the banks flies in the face of efforts by the South African nation to prosperity for all. It is further an indication of how the markets are and can be manipulated by dominant oligopolies to cripple its functioning to suit their nefarious agendas. Without a doubt, further raises a question of the extent to which the currency was manipulated with politically motivated intentions… With the same vigor and zeal directed at public sector corruption, we must be unrelenting in fighting private sector corruption.”

This will be a difficult view for the banking sector to defend, even if only the forex divisions of two local banks are implicated.

Bread and construction

Unfortunately, we have seen other examples where anti-competitive behaviour have drawn the ire of South Africans. The first was the collusion of bakers to fix the price of bread and the second was construction companies who rigged their bids for tenders to build the World Cup stadiums. In one case consumers paid the price and in the other, taxpayers stumped up.

Both these cases led to a massive public outcry – and rightly so. They are held as examples that the private sector cannot claim superior moral ethics relative to the levels of corruption in government.

A critical aspect is however if the banking sector can be branded unethical (or even criminal) for transgressions in their forex divisions, which for the majority of the accused banks are really very small operations. There are most definitely arguments for both views.

Swift resolution

What is critical is that the transgressors are held accountable and if they are found guilty, are prosecuted to the full extent of the law. There can be absolutely no leniency and the actions must set an example on how to deal with such conduct.

It is however critical that it is done in a way that is not to the detriment of the banking sector as a whole.

The biggest risk is that the case is drawn out for years. Banks are notorious for their aggressive legal defense and along with the slow pace at which competition cases are resolved in South Africa, it is not inconceivable that the case is dragged out for years. Appeals will drag it out even longer.

The best case scenario for South Africa is, therefore, a quick resolution to limit uncertainty about the integrity of a critical component to our economy.

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Renee Eagar

Renee Eagar

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this does not surprise me one bit!!! it is also quite easy for traders/back office staff to pass on losses to other clients if those clients are not checking rates consistently!!!! get quotes on all your forex trades!!!! my suggestion – RMB!!!!

So the reason for the rand’s recent gains is due to the banks being caught out and they stopped manipulating our currency.

I say nail the bastards. They (banks) have caused devastation to our economy!
Over how many years can the tribunal impose the 10% penalty? Std Bank’s income from banking activities for 2015 was R 91 Billion. 10% of that is R9.1B.
So I guess now we know where government will get funding for tertiary education from 🙂

no – the reasons for the rand recent gain is because of 1) weakening us dollar 2) lots of cash coming in from sale of sa breweries

Dear Moneyweb, perhaps in one of your future articles, it can reveal to us what the real benefit to consumers are since the so called “bakers fix” saga.
Please compare the prices of bread between all the retailers.
Come on Moneyweb take the challange and show us the real benefit and share with us what happened to the money that the Competition Commission received from the Bakers?

Fines collected by Competition Commission go straight to the treasury.

You will NEVER get a reply because there is none. Today competition rules, which were justified in the past, have become self serving socialsitic tax gathering and job creation.

If there were REAL losses from these marginal “transgressions” they would stand up in court.

This is an interesting moment although the banks will not be paying a fine as such, merely “sharing their winnings” with the competitions board.
Currency impacts on everyone so everyone has lost though this nonsense. I suspect that there will be a wave of outraged whataboutery from the citizens of Moanyweb as trolls defend this crime by pointing at the unprosecuted crimes committed by certain law makers with tax money – or going for the Great Deflection and asking indignantly just what the Completions Board does with the fine. But mum always said that two wrongs do not make a right: it was true then, and now.

It would be good to see business take the lead: isolate the individuals and co-operate in their prosecution. Personal liability: shabby clothes and pap for a while.
But let us see how business – which complains so loudly about ‘corruption’ – actually deals with corruption.

Become the change you seek?

Someone must take the first step.

Somehow i told you so does come to mind! Ryk please read my comments over the past three years and i clearly asked this question.

Indeed. I also find it interesting that only three local banks are cited, even though Absa was quick to say isn’t in the firing line. Are/were these trades isolated incidences by cowboy traders or was it a systemic abuse of the system? The magnitude of the international fines may suggest the latter.

Corruption and Collusion made legal in SA, precedent is set by the Competition Commission on previous cases. Other companies were doing the same thing. All you have to do is pay a fine up to 10 % or negotiate % fine of your annual Turn over and then you can carry on with business as usual.

Absa should not get away with it. One normally
whistle blows someone else not yourself.

They were part and parcel of the whole wrong doing
and should also be punished. They new the investigation
was coming and they just turned on all the other banks
to try and get away. Typical.

It’s the ANC trying to deflect attention from their ruinous mismanagement of the economy. They should sort out their own back yard before picking on the banks which are one of the last internationally recognized well run institutions we have left.

You do realise that ABSA admitted they manipulated our currency? All those banks involved have destroyed our economy and made us all poorer whilst they have been living in luxury at our expense.

Zuma is a c*nman nothing else but so too are these banks. They must be hit hard with severe penalties and imprisonment. What they did was tantamount to treachery.

what this basically proves is how useless these so called experts are at making a profit honestly and yet they get paid huge amounts of money – driving porsches, ferraris etc – where’s your blue sky thinking??????????? i bet the little guys will be used as scapegoats!!!!!!!!!!!

In our FX dealing days we knew, ”a dealer was born” not made!
We had b@lls in our days and built up the FX market etc, during a volatile political time – to a ”first world financial system .etc
These educated idiots that they appoint at Treasuries these days, with all their fancy degrees etc, don’t seem to know their @rses from their elbows….that is why these ”de greed” dealers resort to collusion, etc etc, because they don’t know how to deal, I think .We did not drive Porches and Ferrari’s in the eighties and nineties etc in our trading days, as we had to concentrate on the big dealing budgets that was set by management.
Just look at the packages that CEO’s at Banks like Investec etc, earn.I think the guilty parties (dealers and management)at these Banks are legalized crooks, and they should be prosecuted and locked up like Nick Lesson (The Rogue Trader) was in 1994/95 by the UK.
Maybe a publication like Huffington Post can look into this in more detail!

That is what we want…………….more detail so an informed opinion can be made.

The drivel (other than Theobold’s article) is just click bait hysteria.

Nonsense, please give some examples where the banks have destroyed the economy! The ANC didn’t need any help from the banks to ruin the economy. Eskom, SAA, social grants, massive public service wage bill, corruption etc. have done a far better job than the banks!

banks need to pay up – the ANC needs lots more!

There is a plethora of ways, available for ‘’dealers’’ to influence and or/collude on exchange rates.
My old friend Barry Sergeant is indeed rolling around in his grave. His book, ‘’The Assault on the Rand’’, in my view only ‘’failed’’, because dealers (I know most of them…), who made massive profits from the chaos that erupted and caused – (never seen before) volatility (dealer’s prayers are mostly for volatility as this did/will enable them ‘’to margin’’ their clients on the bid/offer ‘’Hi- Low ‘’ spreads for the day. There was absolutely no way that they would ‘’kiss and tell’’ this, as the collusion (dealers sharing information and market orders) amongst them enabled them to make a small fortune, on a repetitive way. I have been working in an International Bank (not part of the rumour monger- collusion cartel), and never aligned myself with those types ‘’legalised crooks’’ at all.
This type of thing has been going on for years and Barry with the help of a couple of dealers etc, really touched a raw nerve in his book. I think the commission made a couple of crucial mistakes (by not subpoenaing most of those – what Barry would call ‘’skunk’’ dealers/ treasuries. I was dealing in that market and could only describe it as chaotic.
This has obviously been a very political sensitive period for Mbeki’s watch but I really put all the blame for the ‘’waste of time’’ on the Governor Tito Mboweni , as I personally made a plethora of calls at that time to the Bank to inform them their Treasury about the chaos and pressure that was created by their circular, to enforce ‘’exchange control’’, in a market that was already, very short of US Dollars etc.
Investec, being the ‘’mom-and popshop’’ from the local market, should be taught a big lesson, and fined billions, in line with legislation, I think. Investec also features in Barry’s ‘’Kebblegate and Investecgate ‘’ scandals, for the wrong reasons, I think. Standard Bank used to be the ‘’role model’’ and one of the most compliant banks in the market…I am very disappointed in them as they seem to have lost their moral compass as well.

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