U.S. prosecutors are broadening their investigation of the foreign-exchange industry as they question salespeople at the world’s biggest banks on their practices, according to two people with knowledge of the matter.
The Department of Justice has been asking bankers and clients how much sales teams charge customers to exchange currency, the people said, asking not to be identified because the interviews are private. The move is the first indication prosecutors are probing sales practices.
Banks don’t charge commissions or fees for currency transactions, so their profit is determined by how much better a rate they can get than what they offer clients. While some markup is inevitable and justified, the system is open to abuse, as companies often lack the time or expertise to make sure they’re getting a fair deal and only ask for an e-mail confirmation of the order, according to the salespeople interviewed by Bloomberg News.
The process works like this: If a company gives a bank an order to swap US$20 million into pounds at 9 a.m., a salesman can pass the request to a trader, who immediately carries out the transaction, or he can do the trade himself on the bank’s electronic platform. Rather than notify the client that the trade was executed, though, the salesman may wait to see how the market moves.