Futures & Commodities

Swiss watchdog opens precious metals pricing probe

A Swiss regulator launched an investigation into the possible manipulation of precious metals trading by a number of leading banks Monday, making it the latest global watchdog to look into the potential rigging of a major financial market.

Switzerland's competition commission, known as WEKO, has opened an investigation following an initial probe into seven banks including Deutsche Bank, UBS, Julius Baer, HSBC, Barclays, Morgan Stanley and Mitsui.

Spokespeople for HSBC, Morgan Stanley, Barclays and UBS declined to comment.

An employee arranges one-kilogram gold bars at a Tanaka Kikinzoku Kogyo K.K. store in Tokyo, Japan.
Bloomberg via Getty Images

A spokesman for Deutsche Bank also declined to comment but referenced the bank's statement in its second quarter earnings release, where it said it would "continue to cooperate" with regulatory investigations.

Spokesmen for Mitsui and Julius Baer, both said they would fully co-operate with the investigations.

News of the investigation comes as one bank moved closer to resolving precious metal trading investigations with global regulators, sources told CNBC.

Chief executive of Sharps Pixley, a London-based physical bullion broker, Ross Norman told CNBC there wasn't a "single gold trade that hasn't been picked over" by regulators in the U.S., Europe and now Switzerland.

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"It is a good, clean, efficient market," Norman said, adding that certain banks have been investigated "dozens of times" and "nothing untoward has been found."

Here we look at some of the details of the probe.

What is being investigated?

The possible manipulation and "anticompetitive behavior" in the trading of precious metals, such as gold, silver, platinum and palladium, with the Swiss regulator looking specifically at whether the seven banks named were involved in manipulating the bid/ask spread – the difference between the bid and the asking price of a metal.

Who is investigating?

WEKO, the Swiss competition commission, which is made up of 12 members who are elected by the Swiss Federal Council, with the majority of the members of the watchdog being independent experts - usually professors of law or economics.

The Swiss regulator's probe follows investigations launched in the U.S. by the Department of Justice (DoJ) into the possible price manipulation of gold, silver and other precious metals earlier this year, with the regulator requesting documents from some banks in relation to the probes.

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Around 10 banks including Credit Suisse, Goldman Sachs, JPMorgan Chase, Societe Generale, Standard Bank and Bank of Nova Scotia were involved with the DoJ investigations, which were first reported in February.

Following the U.S. probe, European Union antitrust regulators are also investigating precious metal trading.

The European Commission issued HSBC with a request for information regarding the bank's precious metal trading, according to the bank last month and the group continues to cooperate with regulators.

How long will it last?

WEKO said the investigation will likely conclude in 2016 or 2017 and if the regulator finds misconduct, banks will face financial penalties.

Have banks been investigated for precious metals before?

Most of the watchdogs' investigations into bank's trading has centred on misconduct and rate-rigging in foreign exchange markets, most recently with major banks including Citigroup, JP Morgan Chase & Co, Barclays and Royal Bank of Scotland as well as others fined a total of almost $6 billion for manipulating currency trades.

Last year, Switzerland's financial market regulator FINMA fined UBS for "serious misconduct" in precious metals trading, with the Zurich-based bank ordered to give up profits of 134 million Swiss francs ($136 million).

In the U.K. Barclays were fined £26 million by the Financial Conduct Authority after one trader was found to have rigged the London gold fix, the twice daily conference call used to value the metal that has since been replaced by an electronic system.