According to Bloomberg News, the U.S. Department of Justice is expanding its probe of the foreign-exchange industry by talking to the salespersons at the biggest banks in the world. They want to know about current sales practices, including how much customers are charged to exchange currency.
Over a dozen ex- and current traders and salespersons that were interviewed said that it is common to charge a hard markup, which factors in a slight margin for the services of a salesperson. Clients who don’t make currency deals too often or just in small quantities often don’t pay much attention to the rate they receive. Now, the DOJ wants to know if banks are committing fraud when they don’t properly disclose this practice to customers.
The Justice Department is just one of over a dozen authorities in the world that are probing the currency Now, banks are also conducting their own investigations in an attempt to negotiate for leniency just in case any disciplinary actions result.
These institutions don’t have to time stamp when a currency transaction is completed. This can give dealers a chance to mislead customers about the rate under which the order took place. Also, spot foreign-exchange transaction are outside the purview of the EU’s Markets in Financial Instruments Directive, which mandates that dealers execute all reasonable steps to make sure their clients end up garnering the best results.
Because banks don’t charge fees or commissions for currency transactions, the profit they make is impacted by what rate they get as opposed to what they can provide for clients. Certainly, certain markups are warranted but abuses can happen.
Currency Probe Widens as U.S. Said to Target Markups, Bloomberg, June 18, 2014
Banks caught in widening foreign exchange probes, USA Today, April 7, 2014
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