The Mafia’s mantra “It’s not personal, it’s just business” feels remarkably relevant in the wake of today’s big story of the five banks who operated the forex scandal and have today been, collectively, fined £2bn.
The similarities seem clear. They “fixed” the foreign exchange market to create profit opportunities in the same way mobsters would “fix” a lottery, by making sure the numbers always work in your favour. And all without a tommy gun or knuckle duster in sight!
Make no mistake, this manipulation was well organised, widespread and had been happening for many years. Of course, many will claim that the forex scam made little or no difference to the average man on the street, but, the price you pay for your morning coffee for example, is impacted by the rates the coffee shop have to pay to the wholesaler, who have to pay the rates set by the producer, which is affected by exchange rate levels set for the countries involved.
Over 40% of foreign exchange dealing is done in London, which gave the mobsters... er, sorry, bankers, all the opportunity they needed to manipulate the rates. The collaboration between the five banks (I’m inclined to refer to them as the “five families” to keep the Mafia analogy going) was established to help take advantage of a market, whose daily trades are worth twice the annual economic output of the UK.
What this case shows is that the UK still has a problem with the culture that appears to be deeply ingrained influential positions within UK banks. The fact that this market manipulation was going on between 2008 (when the global financial crisis had already begun) and 2013 (when the issue of culture within firms had already been identified as a significant factor in its cause), suggests that this was a deliberate, cold-blooded exploitation of power and position, carried out with little consideration for the impact on the consumer. A culture of greed and selfishness of which the Mafia would be proud.
It’s interesting too that the forex scandal first came to light through a whistle-blower and not through the (supposedly robust) regulatory systems and controls in place. Thank goodness we have these “Donnie Brasco” types around, and that they are prepared to speak out against this sort of activity, otherwise it might still be going on today.
(Although the sceptical among you may note this followed hot on the heels of the Libor scandal, so could still be going on today in some dark corner of the banking (under)world).
A final comment has to be made on the size of the fine. Is £2bn enough of a financial penalty between five banks whose combined annual profits were around £40bn in 2013? The jury’s still out on whether this will be enough to signify the cultural shift the regulator’s been searching for and whether behaviours can be altered by fines alone – particularly where there is so much profit to be made.