Banks probed by US regulators over price-rigging precious metals

A number of top-tier global investment banks are under investigation by U.S. regulators over possible price-fixing of precious metals such as gold and silver, according to The Wall Street Journal, who cited people close to the investigation.

At least 10 banks are reportedly facing scrutiny by both the US Justice Department and the Commodity Futures Trading Commission (CFTC). The Justice Department is investing the price-setting process by banks in London, while the CFTC has opened a civil investigation.

Banks named in the WSJ report include HSBC Holdings, Bank of Nova Scotia, Barclays, Credit Suisse Group , Deutsche Bank, Goldman Sachs Group, JP Morgan Chase, Société Générale, Standard Bank Group and UBS.

The investigation marks another dramatic turn in price manipulation allegations in the global banking sector after fines and settlements for some high-profile banks over the past two years following news that Libor and foreign exchange markets were rigged.

The latest probe was highlighted in HSBC’s annual report on February 23 which disclosed that the CFTC sent a subpoena to the bank in relation to its precious metals trading operations. HSBC said it was cooperating with the probe.

The precious metals investigation broadens the ongoing scrutiny of banks over manipulation of financial benchmarks by global regulators. The Financial Conduct Authority (FCA) said it’s reviewing precious metals as part of continuing supervisory work spurred by the FX probe. The UK's financial watchdog already fined Barclays in May after finding a trader at the London-based bank sought to manipulate the price of gold in 2012.

In the US, three major banks - JPMorgan, Citigroup Inc. and Bank of America Corp - who settled FX manipulation claims with regulators in November 2014 were required under the terms of the deal to review and identify other trading activities that could raise similar market conduct issues, which prompted scrutiny into precious metal trading.

The Swiss Financial Market Supervisory Authority (Finma) included precious metals trading in its currency-rigging probe, saying it found “serious misconduct” by UBS employees when ordering UBS to repay 134 million Swiss franc in profit as part of the settlement, which didn’t specify which desks accounted for the profit, and capped bonuses for traders in both areas.

Until last year, the prices for gold, silver, platinum and palladium were set using an antiquated process of once-or twice-a-day conference calls between a small group of banks. The pricing was then used in the physical markets for precious metals by such people as jewellery-makers and for financial products like exchange-traded funds.

However, in the wake of the libor and FX scandals, the process to price precious metals was overhauled. Under the new setup, Thomson Reuters runs the silver daily fixes and the LME the platinum and palladium while the ICE Benchmark Administration has been selected to run the electronic gold price benchmark from March 20 to replace the London gold fix.

For regulators probing this case, the first task will be demonstrating culpability by the banks, said Ken Odeluga, market analyst at City Index. "Whilst the timeline from an investigation being made official to its conclusion is shrinking, due to the increase of compliance oversight in recent years, the entire process still typically takes more than a year," added Odeluga.