Some of the biggest banks in the $5tn-a-day currency markets plan to use a prominent lobby group to push back at rules requiring them to disclose the charges they impose on customers, lining up a potential clash with regulators. The Brussels-based Association for Financial Markets in Europe (AFME), which represents banks and other market participants, is in the process of reconvening a working group on the issue. The group is aiming to change the minds of regulators after the European Securities and Markets Authority, the Paris-based agency overseeing the EU, updated its guidance on the matter at the end of March, showing few signs of relenting. Banks say the extra transparency is cumbersome to provide and of little value. But regulators appear to be in no mood for a rethink.
In contrast to most markets, trading in currencies does not involve commissions. Instead, banks make money by slapping a so-called “spread” on transactions, making it somewhat more expensive for clients to trade with them than for banks to trade with each other. Under new rules brought in last year by the second Markets in Financial Instruments Directive (or Mifid II), banks now have to explain any mark-ups and costs they impose through those means, with the aim of helping investors pick which banks to deal with. Mifid exempts spot transactions, such as instant exchanges of dollars for yen, but derivatives — swaps, options, forwards — are covered.
For banks, currency trading costs are often part of a complex equation. Corporate customers, for example, often receive cheaper costs for borrowing if they push all their currency transactions through a particular bank. That can make it tricky to provide a precise schedule of fees.
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