Immunity offered in forex cartel probe

Banking industry insiders are in the dark over what the Commerce Commission's foreign exchange probe is all about. Photo / Dean Purcell

The Commerce Commission has offered immunity from prosecution to a financial markets participant as part of an investigation into possible manipulation of currency rates and influencing of benchmarks in foreign exchange markets.

The investigation started as a result of a "leniency application" under the commission's cartel policy, which protects those coming forward with information, the commission said.

According to its website, the consumer and markets watchdog operates a "cartel leniency policy" to encourage reporting of price collusion.

Banking industry insiders were in the dark over what the commission's foreign exchange investigation was about and inquiries directed at the Bankers Association and the Financial Markets Association drew blanks.

"At this stage we are unaware of any implications for our members around this particular issue," said Paul Atmore, chief executive of the Financial Markets Association, a professional body for wholesale banking and financial markets.

Cartels involve illegal agreements between competitors not to compete with each other, such as price fixing, the restriction of outputs, the allocation of customers, suppliers or territories, and bid rigging.

They are hard to detect and harm the economy by removing the benefits of competition, leading to higher prices and less choice for customers, according to the commission.

Regulators in Hong Kong and New Zealand said this month that they were investigating banks' conduct in the foreign exchange market as part of similar investigations around the world, including Singapore, Britain and Switzerland.

About US$5 trillion is traded each day on foreign exchange markets and the Kiwi dollar is one of the world's most actively traded currencies.

Market authorities worldwide are looking closely at traders' behaviour on several key benchmarks, spanning interest rates, foreign exchange and commodities markets.

Several banks and brokers have already been fined billions of dollars for manipulating benchmark interest rates such as the London Interbank Offered Rate (Libor).

Authorities are looking at whether traders from different banks colluded to influence currency prices for their own benefit at the expense of clients.

Massey University senior banking lecturer David Tripe said the probe seemed linked to others abroad. "But I would be reluctant to conclude that there was widespread collusion among the local banks based on today's announcement."