UK regulator sees 'no clear evidence' of gold market rigging by investment banks


By James Titcomb
The Telegraph, London
Wednesday, July 2, 2014

The City regulator has "no clear evidence" that banks are rigging the price of gold, although the process to set it is open to abuse, an official at the watchdog has said.

David Bailey, the head of market infrastructure and policy at the Financial Conduct Authority, told MPs on Wednesday that participants in the 95-year-old gold fix could potentially manipulate it.

"It is possible, but I have no clear evidence that that has actually happened," Mr Bailey told the House of Commons Treasury select committee.

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The committee's chairman, Conservative MP Andrew Tyrie, said flaws in the price fixing could put "millions of people" at risk and said the regulator should be able to quickly act on any indication of rigging.

The gold fix is a twice-daily process to set a market rate for its price, which has existed since 1919.

Four London banks -- HSBC, Barclays, Societe Generale, and Scotiabank -- hold a conference call determining the level of supply and demand in the market, and twice set a benchmark price which influences trading in the precious metal.

Such benchmarks are being heavily scrutinised in the wake of the Libor scandal, which has seen several banks pay out fines worth hundreds of millions of pounds for rigging the lending rate.

Subtle changes to these reference points can have a significant impact on markets, potentially affecting pensions and other investments.

Next Monday the World Gold Council will convene in London to consider changes to the fixing, at a summit to be attended by the FCA.

Alberto Thomas, a partner at the advisory group Fideres Partners, said he estimated that the gold fix was rigged on between 10 and 30 percent of trading days and that there was a "strong indication of manipulation."

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

The FCA was also urged to ask for extra powers by John Mann, the Labour MP. "This is a flawed and manipulable market that needs to be sorted out by yourself," he told Mr Bailey. "Why don't you come to us and say: 'It's open to abuse; this system needs to change.'?"

Mr Bailey said the FCA does not have the power to regulate the gold fix, although it has been reviewing the process.

In May the watchdog fined Barclays L26 million over failings related to the gold fix, which allowed a trader at the bank to exploit systems in an attempt to profit at the expense of a customer.

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