U.K. Lawsuit Seeks Compensation for Losses in Foreign Exchange Transactions

This post references an article originally written by Kaye Wiggins for Bloomberg, published on July 29, 2019.

In May it was reported that five banks were being fined $1.2 Billion by the European Commission on accounts of collusion on foreign exchange trading strategies. It is now being reported that a few of those same banks are being sued in the U.K. for more than $1 billion in damages. JPMorgan Chase & Co., UBS Group AG, Barclays Plc, Citigroup Inc. and Royal Bank of Scotland Group Plc are being sued for their participation in market manipulation via online chatrooms. The lawsuit is based on the accusation that market manipulation by the banks caused pension funds, asset managers, hedge funds, and corporations to lose out between 2007 and 2013.The suit seeks compensation for the losses.

The case is expected to take three to five years and was filed by Scott+Scott Europe whose U.S. branch, Scott+Scott Attorneys at Law LLP, had previously led a class action suit resulting in $2.3 billion in settlements. It is notable that Blades International, Inc. helped a client earn a modest settlement which was a small portion of that $2.3 billion fund in the U.S. This highlights the need for FX Rate Integrity®, which helps corporate clients receive appropriate reimbursement in the event they were receiving Excessive Markups for their FX transactions.

Read the fully story on Bloomberg.

 

-Paola Gasca, Analyst

Amex’s FX Department Sought to Increase Revenue, Instead Became an Example of Dishonesty in the FX Market

This post references an article originally written by AnnaMaria Andriotis published by the Wall Street Journal on July 23, 2019.

After a yearlong investigation regarding misrepresented FX prices, American Express has found themselves issuing refunds to nearly 200 customers. The refunds are the result of a surprising practice by Amex’s foreign exchange unit which “routinely increased currency conversion rates without notifying customers in an effort to increase revenue”, the WSJ reports. The investigation found that most clients affected by the dishonesty are small and midsize business clients who regularly engage in international business.

The reimbursements are not only costing American Express an estimated $1.6 million, but also their reputation as an integrity-based company. The investigation and end-result further highlight the importance of honesty and transparency in the foreign exchange market. Of course, as with most FX probe situations, it is the part, not the whole, to blame as certain departments may feel more pressure to meet goals or feel less monitored than larger more impactful departments. Regardless, it will be interesting to see if financial institutions begin to implement more honest practices or continue with business as usual. For the meantime, corporate clients are wise to learn and understand more about their FX transaction costs and fees. A service like FX Rate Integrity® can provide the knowledge and support corporate clients need.

Read the fully story on The Wall Street Journal.

-Paola Gasca, Analyst

Facebook’s Libra and the Call for Integrity

Facebook created Libra to serve as a “simple global currency and financial infrastructure that empowers billions of people” (Libra Association Members, 2019). The launch and integration of Libra hopes to expand accessibility to global payments, while at the same time bringing an increased sense of security, integrity, and responsibility into global payment systems. The irony of it all is that a cryptocurrency created to increase trust and integrity in the market is drawing skepticism world-wide. The currency has yet to launch (original plans have a launch date in mid-2020) and it has already been met with a wave of critics questioning the security of a cryptocurrency created by Facebook—a company with a long history of security breaches and compliance issues.

While the future of Libra is still uncertain, it has generated a conversation about security and integrity in the financial industry—especially in global payments. As far as banks are concerned, we are likely to see a decline in foreign exchange transaction costs (i.e. the rates banks charge clients) as a result of the rise of cryptocurrencies and the rise of the financial technology industry. For those concerned with security, the introduction of Libra highlights the importance placed on security and integrity in the financial industry. Currently, banks have lucrative FX payments businesses. However, the high markups attracted Financial Technology competitors starting years ago. More recently, the banks see efforts by Libra and the cryptocurrency market to move into the lucrative FX payments space.

The issues of Libra developing as a cross border payment tool and demand for reliability highlights the importance of awareness. Similarly, corporates are wise to be aware of how much they are paying in FX transactions and why. FX Rate Integrity® is a step in that direction.

Read the Libra Association’s whitepaper here.

-Paola Gasca, Analyst

Exim Bank Open Subject to Senate Approval

This post references an article originally written by Andrew Ackerman for The Wall Street Journal, published on June 18, 2019.

Representative Maxine Waters and Representative Patrick McHenry reached an agreement on Tuesday night which would keep Ex-Im Bank open for another 7-years. The agreement will allow the bank to remain operational and at the same time apply a series of new financing restrictions. The imposed restrictions would include “steps to ensure the agency doesn’t provide subsidies to certain state-owned firms in China [and] boost lending to smaller businesses”. The agreement is still pending approval from the Senate, but the House is hopeful that the added restrictions will help convince Senate Republicans, who have a historically unfavorable view of the bank. If approved, the agreement would also mean a name change for the bank—“The United States Export Finance Agency”.

Read the full story on The Wall Street Journal.

 

-Paola Gasca, Analyst

Why Fintechs Can’t Dent a Bright Future for Africa’s Banks

This post references an article originally written by Brian Caplen for The Banker, published on June 18, 2019.

The growing presence of fintechs has certainly had a tremendous impact on the banking industry, yet Africa appears unphased. The Banker states, “banking revenues are growing faster in Africa than anywhere in the world and returns on capital are among the highest”. This means that although fintechs may appear to be taking over the industry worldwide, regional banks in Africa continue to operate as usual. While African banks may feel a slight pressure from fintechs in areas such as money transfers, overall business operations are thriving. The Banker continues to suggest the development of trad blocs and withdrawal of foreign banks, will provide more lucrative business for local banks.

It is suggested that the reason local banks may thrive where foreign banks fail is because they have the knowledge to operate based on compliance and integrity. Lately, the issue of compliance has been discussed within the banking industry. Foreign banks are being held accountable for failure to comply with industry standards and principles. This highlights the importance of client-bank trust, as well as the importance of transparency in the banking industry, especially as it relates to foreign exchange transactions. Foreign Exchange Rate Integrity® can help keep banks accountable and foster an honest client-bank relationship.

Read more on The Banker.

-Paola Gasca, Analyst

Acquisition of TSYS is Indicator of Increased Innovation in Payment Tech. Industry

This post references an article originally written by Robert Armstrong for the Financial Times, published on May 28, 2019.

Global Payments recently acquired TSYS—the result of a $2.5bn all-stock deal. The acquisition comes as a wave of consolidation sweeps through the payment technology industry.

Jeff Sloan, chief executive of Global Payments, attributes this consolidation cycle to increased innovation saying, “The reason I think [the consolidation] is accelerating now is that the pace of innovation is accelerating”. Sloan also described the payments technology industry as a scale business, suggesting he believes the newly combined company has the capability to grow and adapt along with the industry.

The acquisition of TSYS follows Fiserv’s recent purchase of First Data and Fidelity National Information Services’ agreement to buy Worldpay—both $39bn and $43bn deals, respectively. As Sloan stated, consolidation of payment technology businesses is an indicator of growth and innovation within the industry.

With innovation comes the need for adaptability. As the presence of payment technology grows, it is important to understand how your business can grow and change as well. Read more about FX Rate Integrity®, as it can be used as a tool to help expand and monitor your foreign exchange business practices.

Read the full story on Financial Times.

-Paola Gasca, Analyst

The Need for FX Rate Integrity® Within Integrity Compliance Principles

Integrity Compliance, in essence, is a set of standards imbedded in a company’s values for the purpose of ensuring the ethical and fair execution of business practices. The addition of integrity compliance within a company’s overall business policies can also help maintain healthy third party relationships. While integrity compliance policies focus on internal controls, it is just as important to focus on these third party relationships. Internal behavior is much more manageable than the actions of external parties—those with which the company decides to foster business relationships. This is why including third party integrity compliance principles can be helpful in making sure your company is dealing with the best of people (and that the relationship remains mutually beneficial).

Porter & Hedges, LLP makes an excellent case for the inclusion of third party behavior clauses:

“The company must communicate its ethical standards and values expressly to third-party partners. Contracts with such partners should include reference to the company’s integrity compliance program, audit rights, and provision for termination if that partner is found to have violated such standards. There must also be ongoing monitoring of the relationship, […], audit rights, and proper internal controls to monitor the payments made to those third-parties.”

As described, it is imperative a company communicate their own values and expectations when partnering with a third party. Doing so can help make sure they are choosing the most beneficial partner, who will respect the mentioned values.

The above excerpt also highlights the opportunity for Foreign Exchange Rate Integrity® to be included within a company’s integrity compliance principles. FX Rate Integrity® provides assurance for businesses dealing with foreign currencies—specifically in bank negotiations. A company should explicitly list their expectations, standards, and goals in the third party section of their integrity compliance principles. Ideally, the company can use FXRI® service to make sure their appointed bank is keeping up with integrity compliance standards (and continues to do so throughout the duration of the partnership). FXRI® can alert a company in the event a bank has “violated such standards”. Additionally, FXRI® clients are encouraged to consider FXRI® auditing after one year—this supplement can be likened to the “ongoing monitoring” mentioned in the excerpt above.

-Paola Gasca, Blades International, Inc. Analyst