George Osborne could soon unveil measures to clean up the global currency markets in order to head off a potentially massive foreign exchange market manipulation scandal.
According to the BBC, the Chancellor is working with officials and the Financial Stability Board, a group of global regulators, to crack down on the largely unregulated £3.1 ($5.3) trillion-a-day market, which is the biggest market in the world.
Osborne told MPs in April that allegations of foreign exchange ("forex") manipulation was "potentially very, very serious". Others have warned that the scandal could be just as bad as the Libor rate rigging scandal that tarnished the banking industry, claiming the scalp of Barclays CEO, Bob Diamond.
David Buik, market commentator at Panmure Gordon, told the Huffington Post UK said that Osborne's planned crackdown made "the most enormous amount of sense".
He warned that the scale of market manipulation "could get massively out of hand and make all the previous scandals look like vicarage tea parties."
The prices in the forex market are set at the 4pm "fix", a City benchmark set by the median price of trades taking place in a 60-second window. It is alleged that traders were putting in client orders ahead of this window in order to influence the benchmark, against which currencies are priced.
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Osborne could also be looking to head off any potential forex market rigging scandal in order to avoid the Tories' election efforts in 2015 being derailed by accusations that they failed to act over any misconduct.
"The Coalition's nightmare scenario is that billions of pounds of forex fines are announced in 2015 and Labour accuses the government of a lack of action. Mr Osborne is looking intently at tightening the forex rules to try and head off just such an eventuality," BBC business editor Kamal Ahmed wrote.
Regulators around the world are looking into allegations of forex manipulation, with at least fifteen banks reported to be involved including Barclays, HSBC, the Royal Bank of Scotland and Goldman Sachs.
London is central to the foreign exchange market, with 40% of trades taking place in the capital. Some banks, like Deutsche Bank, have already suspended or fired traders over the allegations, although no allegations have yet been proved.
The Financial Conduct Authority, the City watchdog, warned that banks and traders could face fines and bans if misconduct is found, after previously fining Barclays, RBS, UBS and money broker ICAP for Libor rigging.
