Treasury concern over collusion
Allegations point to poor market conduct practices
NATIONAL Treasury has weighed in on the graft claims against major local and international banks, saying it viewed the claims in a very serious light.
Bank stocks fell slightly on the back of the allegations.
The Treasury said if proven true, the claims would confirm the pervasiveness of unbridled greed within the ranks of the foreign exchange trading sections of banks, even after evidence that such behaviour had the potential to collapse national and global financial systems.
It said such actions would lead to immeasurable pain to ordinary people as evidenced by the deep recession of 2008-09, which was triggered by banks conducting their business recklessly.
“It should be noted these allegations, if proved to be correct, point to poor market conduct practices at such offending institutions,” the Treasury said.
“This is precisely the type of abuse the National Treasury had in mind in 2011 when proposing the coming Twin Peaks reform to put in place a new market conduct regulator to ensure that all financial institutions treat their customers fairly and operate with the highest ethical standards.”
The statement came just hours after the Competition Commission said it had recommended the prosecution of nearly 20 local and international banks to the Competition Tribunal for collusion in the fixing of prices and allocation of markets while trading foreign currency since 2007.
Bank stocks fell marginally yesterday as the fallout from the decision continued, bringing the nation’s six-member banks index down 4.5 percent since the beginning of the year.
SA Institute of Race Relation’s chief economist Ian Cruickshanks said the country’s banking sector was well regulated and would withstand the scandal.
“The investors might well play a wait-and-see for the moment and see how this plays out, but the strong reputation of South Africa’s banking system, especially the central bank, would bring investors back into the fold after the dust has settled,” Cruickshanks said.
The country’s banks have been under duress to continue making profits in times of sustained weak economic growth.
Last week, rating agency S&P maintained a negative outlook for the country’s banks for this year, attributing this forecast to sluggish economic growth and the persistent credit risk of over-leveraged households.
S&P said while the outlook remained negative, the pressure was easing on the sector.
The Banking Association of South Africa managing director Cas Coovadia said the decision by the Competition Commission demonstrated the independence and strength of regulatory authorities.
“If during this process any bank is found wanting and in contravention of the prevailing legislative and regulatory framework governing competition in South Africa, it must be addressed urgently by the relevant authorities,” Coovadia said.
Investigation
The South African Reserve Bank (Sarb) said it had in partnership with the Financial Services Board conducted an investigation in response to various other investigations that were being undertaken by international regulators that looked at foreign exchange trading practices.
“The review found no evidence of serious and widespread misconduct in the South African foreign exchange market, but saw scope for improvement in overall market conduct and made several recommendations in this regard,” the Sarb said.
Körner Perspective fund manager Graeme Körner said the markets would not overreact with the expectation that, if found guilty, the banks would settle for less than the 10 percent fine the commission wants imposed on them.
Cosatu spokesman Sizwe Pamla said collusion in the private sector was rampant and it was high time that government intervened decisively to root out the practice.
“The current penalty of 10 percent of annual company turnover is obviously ineffectual, because these companies just budget for this money and carry on with their nefarious activities,” Pamla said.