After allegations of rigging interest rates and foreign currency
markets, major global banks now face probe for their involvement in
manipulating precious metal market. As per a
Wall Street Journal
report, at least 10 global banks are being investigated by the U.S.
Department of Justice ("DOJ") and the Commodity Futures Trading
Commission ("CFTC") for allegedly rigging prices of precious metals
like gold, silver, platinum and palladium.
The DOJ is examining the price-setting process for these metals in
London, while the CFTC has initiated a civil probe. The benchmark
for these precious metals is used by miners, traders, jewelers,
central banks and financial institutions to trade and value them.
Though the process of setting prices for precious metals have been
revamped last year, before that prices were set using a century-old
method of one or two conference calls per day between groups of
Banks under scrutiny include HSBC Holdings plc (
), JPMorgan Chase & Co. (
), Credit Suisse Group AG (
), Barclays PLC (
), Deutsche Bank AG (
), The Goldman Sachs Group, Inc. (
), The Bank of Nova Scotia (
), SociétéGénérale SA, Standard Bank Group Ltd. and UBS AG (
Of these, HSBC revealed in the 2014 annual report that both the
regulators had issued subpoenas seeking documents on its precious
metals trading operations. The company is cooperating in the
Notably, the European regulators had dropped similar probe against
global banks after failing to find evidences. However, in 2014, the
U.K. Financial Conduct Authority had fined Barclays £26 million
($40.2 million) for negligent controls, after one of its traders
allegedly rigged the gold price at the expense of a client.
Further, many banks are facing potential class-action lawsuits
filed by investors, traders and other plaintiffs in a federal court
in Manhattan over the above-mentioned charges. The plaintiffs seek
damages for losses suffered owing to alleged rigging of gold price
We believe that banks may have to dole out millions of dollars to
settle these accusations, similar to settlement deals regarding
alleged manipulation of other benchmark rates like interest rates
and FX. Such setbacks could impact the financials and hamper growth
Nevertheless, banks, for time immemorial, have been using all
methods (legal or illegal) for earning profits at the expense of
others. Despite these business misconducts, they hardly admit to
any wrongdoing. We cannot help but feel that such attitude will
lead to an erosion of goodwill in the long run.
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