As compliance management becomes more of a priority for buy-side financial institutions in the aftermath of the London Interbank Offered Rate benchmark rigging scandal, a researchers suggests there’s reason to believe the London gold fix may have been manipulated for the past several years.
The allegation comes from a university professor and researcher named Rosa Abrantez-Metz of New York University. Also serving as an advisor for the European Union, the professor’s accusation was made in the draft of a research paper that may soon be published.
“The structure of the benchmark is certainly conducive to collusion and manipulation, and the empirical data are consistent with price artificiality,” wrote Abrantez-Metz, who partnered with her husband Albert Metz. “It is likely that co-operation between participants may be occurring.”
The research paper contends that as many as five banks may be involved.
Previous research uncovered Libor scandal
Those who are familiar with the back story of the Libor benchmark manipulation scandal may be familiar with the co-authors. That’s because in 2008, Abrantes-Metz published her paper titled “Libor Manipulation?” Officials involved in the inquiry have stated it played a significant role in the subsequent filing of charges against the at-fault parties. Charges are pending against former employees of one of the banks believed to have been involved and the respective companies have paid billions in fines.
Though there are many theories as to why benchmark rigging seems to have occurred with some frequency, perhaps the best explanation is because there has been limited oversight.
“Until recently, index data and benchmarks have been largely unregulated and unsupervised by national regulators,” said Andy Knowles, head of compliance services at RIMES Technologies.
He added that what’s resulted is “unprecedented regulatory scrutiny” of benchmarks, as more people are now aware of how they can be manipulated with relative ease. While these probes may serve as an obstacle to business growth, the importance of the benchmarks being accurate and immune from manipulation can’t be overestimated.
“Benchmarks determine the value of scores of financial contracts, and for leveraged products, the impact of manipulation is magnified in profit or loss,” said Knowles. “Any doubts about the honesty and accuracy of indices can undermine market confidence and result in real losses for investors.”
He continued by suggesting executives at buy-side financial institutions can perform their due diligence through sound data governance policies that probe how data is being stored and managed.