Deutsche Bank conducts internal probe into trading on gold "fix"

Thu Jun 19, 2014 9:17pm IST

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* Deutsche Bank resigned gold and silver "fix" seats in May

* Bafin starts investigating Deutsche Bank in mid-2013

By Clara Denina

LONDON, June 19 (Reuters) - Deutsche Bank is conducting its own investigation into trading around the setting of London's daily gold price benchmark, in addition to one being carried out by Germany's financial watchdog, sources close to the matter said.

The German bank had been a member of the century-old gold "fix" - a widely used price set twice a day by five banks in a conference call - for two decades until May, when it resigned from the processes for gold and silver.

An internal investigation can be triggered by scrutiny from external regulators as a bank would need to examine its own processes to answer questions raised.

Taking early action as a result of an internal probe may also mitigate the impact of any sanction the regulator imposes.

"The external regulator Bafin visited (Deutsche's London offices) over a year ago now and looked at the metals business and all the benchmarking issues. That's when the internal audits started as well," one source said.

"They (Deutsche Bank) will be thoroughly investigating the trading activity that has taken place, particularly on binary trades."

In May, Barclays Plc, one of the five banks involved in the gold fix, was fined 26 million pounds ($43.8 million) by the Financial Authority Conduct for failures in internal controls that allowed a gold options trader to manipulate the setting of gold prices.

German regulator Bafin called on banks in 2013 to tighten controls and processes around price-measuring mechanisms, including those in precious metals.

"We have been conducting investigations since the middle of last year," a Bafin spokesman said.

BENCHMARKS PROBED

Regulators across Europe and the United States started to scrutinise benchmarks in several markets at individual banks after the Libor manipulation case in 2012, for which firms have been fined billions of dollars.

Deutsche Bank said it is working with regulators on the their review of the gold and silver benchmarks.

"Certain regulators have been reviewing benchmarks, including gold and silver. As we have said previously, we are cooperating with those inquiries," it said in an emailed statement.

Barclays was the first bank to be charged over attempted manipulation of the London gold "fix". The FCA said that since the incident, the bank has "enhanced its systems and controls in relation to the gold fixing."

HSBC and Societe Generale, which are still involved in setting the price of gold, declined to comment on whether they are conducting similar internal probes into trading during the gold fixing process. Bank of Nova Scotia did not answer requests for comment.

The Gold Fixing Company, which represents banks involved in the metal's price settlement, is in the middle of a review to ensure the process complies with benchmark principles outlined by the International Organisation of Securities Commissions (IOSCO)- a global umbrella group for market regulators.

A source close to the regulator said that "when banks are aware of the regulator's enforcement processes, they will conduct an internal review along formal legal lines."

Over the past three months, U.S.-based investors and traders have filed more than 20 separate antitrust claims accusing the five banks of colluding to manipulate the gold price during the daily setting process. The banks refute the claims.

Deutsche Bank would not be the first investment bank to carry out an investigation into gold trading. UBS said in its annual report in March it had widened an internal probe of its foreign exchange operations to include precious metals trading. (Reporting By Clara Denina. Additional reporting by Thomas Atkins in Frankfurt. Editing by Veronica Brown and David Evans)

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