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Tinker, Tailor, Trader, Spy

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You don't have to be reading one of John Le Carre's spy novels to believe his quote that "bankers will always get away with whatever they can get away with".

The latest scandal hitting the industry is the fast-moving investigation into the $5.3 billion foreign exchange market. Just three months in, it has already swept up 10 banks, forced the suspension of 12 traders and sparked a billion-dollar legal suit from an irate client.

This has got the Square Mile worried all over again. The City is concerned that where there has been a price influenced by bankers, benchmarks have been tinkered with, tailored, and a whole lot of secrets have been divulged and shared – mostly on Bloomberg messenger.

(Read more: Biggest banks face forex probe questions)

But the truth is that Le Carre's claim is just human nature, even more pronounced when money is involved. It's no more novel than spying was in Le Carre's nail-biting thrillers set in the Cold War.

The problem with all these benchmarks – Libor, forex, commodities, ISDAfix - is that people who influenced the price also had a financial stake in the level at which it was set. This opens a system up to abuse -- although none has yet to be found in the current round of forex investigations. It should be one of the biggest lessons we learn from the financial crisis: don't leave temptation unchecked by lax or ineffective rules.

Unlike Libor, forex prices are set entirely by observable transactions rather than a benchmark created by quotes from a handful of traders. For Libor, it was far easier for traders to submit quotes that distorted the real market price. For forex, it would need enough traders to agree in advance how they would trade the market during the set windows when rates were set. Some of this may simply be information-sharing, a practice that was possibly accepted in the past but not necessarily in the future or retrospectively.

(Read more: EU to fine banks billions of euros over rate rigging

According to insiders, staff suspensions at banks like Barclays, RBS and Citigroup, have been triggered more by intemperate language rather than clear proof of rigging in such a liquid market.

Traders had reportedly coined some neat lingo too: "banging the close", "trading ahead" and "painting the screen".

This teenage prose may make it easier for regulators to nail "whodunit" because unlike the intricate plots of a Le Carre novel, where spies are masters at covering their tracks, the banking industry seems to be teeming with traders determined to blow their own cover.

(Read more: Banks and trust: No honor system here)

How else to explain all that chat room bravado that punctuated market rigging with smiley faces?

Luckily, they're not spying for a living. Nevertheless, another scandal would only further weaken the trust that people have in markets.

Benchmarks need to be set with clear boundaries so that those who have a stake in prices do not have undue influence on where those rates are set.


Helia Ebrahimi is UK business editor at CNBC. Follow her on Twitter @heliaebrahimi

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