Forex rigging scandal to trigger litigation "flood"

Lawyers are predicting a “flood of litigation” from pension funds and other fund managers following the Forex rigging scandal.

A total of £2.6bn in fines were imposed on several banks this week for failing to stop the alleged manipulation of the US$5.3tn per day foreign exchange market. Chancellor George Osborne has since promised funding for a criminal investigation into the issue by the Serious Fraud Office.

Simon Hart, banking litigation partner at City law firm RPC, says: “We anticipate a much larger number of high value disputes against the banks because of Forex manipulation than we saw over Libor rigging because it should be much easier for market participants to prove that they lost money. 

“The short term nature of most Forex trades means that any manipulation will create clear winners and losers. The longer term nature of Libor positions made it harder to identify losses linked to manipulation.”

Hart said RPC had already been speaking to a number of market players who have been awaiting the Financial Conduct Authority’s (FCA’s) decision.

Simon Duncan, solicitor at Moon Beever, says: “I can certainly see potential for claims but it is difficult to say how large those claims might be.

“It is one thing to say to a bank that’s been fined for currency rate rigging that there’s been fraudulent misrepresentation, but it’s harder to prove the loss. You would need to demonstrate at trial what the rate should have been when the deal was executed.

“However this is fairly explosive in litigation terms, and it may be that the banks would prefer to settle before trial, as happened with the test case for LIBOR, which resulted in a confidential settlement."

Andy McGregor, banking litigation partner at RPC, says: “The banks will have been negotiating with the regulator for months trying to come to a settlement to reduce the size of their fine, but also trying to limit the extent to which the FCA’s final penalty notice includes any admissions or evidence that could be used against them in a potential civil claim in the future.

“The FCA's final penalty notice will encourage market participants that have been considering bringing claims. We’re still awaiting findings from the Competition and Markets Authority in the UK investigation and the strength of those claims is likely to increase materially once those findings are made public.”

“Forex and Libor have been getting the headlines, but it is already known that the regulators are looking at the gold fix and the ISDAfix benchmark. Given these widespread investigations, market participants should now actively consider the extent to which banks may have been manipulating other indices, from equities through to commodities.”