Canadian banks under international spotlight

New scrutiny from regulators

TORONTO — Canadian banks have grown in size and scale to the point at which they are finding themselves in the crosshairs of global regulators — and with profit constraints on the home front, they have to continue that pursuit for growth outside the country, added scrutiny or not.

The latest example is Bank of Nova Scotia, whose precious metals business has reportedly attracted attention from regulators probing price-setting in a sweep that includes multinational banks such as HSBC Holdings PLC, JP Morgan Chase & Co., France’s Societe Generale Group, and UBS.

Scotia’s 17-year-old precious and base metals division, Scotia-Mocatta, is part of the global banking and markets division of Canada’s third-largest bank, and it operates from 10 offices around the world, including Hong Kong, Shanghai, Dubai, London and New York. One of the world’s top bullion dealers, Scotia-Mocatta boasts 160 professionals.

“They have a sizable business via their Mocatta subsidiary,” said Peter Routledge, a financial services analyst who tracks Scotia at National Bank Financial.

The bulk of Scotia’s precious metals business was bought in late 1997 from Standard Chartered Bank. The acquisition transformed Scotia from the biggest Canadian precious metals player to a global force. It also landed the Canadian bank a seat at the table for the prestigious London gold fixing, a twice-daily auction that served as a pricing mechanism for the precious metal.

The acquisition also brought with it some 3,000 clients that included central banks, industrial firms, mines, smelters, and car manufacturers.

Scotia and two U.S. regulators — the Department of Justice and the Commodities Futures Trading Commission — declined to comment on reports of the probe involving at least 10 major banks for possible rigging of precious metals markets, and there has been no formal allegation of wrongdoing.

But company watchers say such investigations are likely to continue in the wake of the 2008 financial crisis — and will ensnare Canadian banks as they expand their business into heavily scrutinized jurisdictions like the United States.

Last year, for example, Royal Bank of Canada was among 16 global banks including JP Morgan, Bank of America, and Citigroup that were named in a suit filed by the U.S. Federal Deposit Insurance Corp. that alleged rigging of LIBOR, a key global interest rate.