Daily Times

The competition watchdog is probing a suspected cartel among bond traders at a group of international banking giants, posing a renewed risk to the City’s reputation a decade after the financial crisis.

Sky News has learnt from senior banking industry figures that a Competition and Markets Authority (CMA) investigation into “certain types of financial product”, revealed in a brief statement on Friday, is focused on activity in London’s multibillion pound bond markets.

The inquiry, which the CMA said had been launched earlier this week, relates to “suspected anti-competitive arrangements in the financial services sector which may infringe Chapter 1 of the Competition Act 1998 and/or Article 101 of the Treaty on the Functioning of the European Union”.

London’s bond markets, which are among the largest and most liquid in the world, are used by companies and governments to sell debt to institutional investors.

Details of the CMA investigation remained ?sketchy this weekend, including which banks were under scrutiny.

The investment banks with a major presence in London’s bond markets include the likes of Citi, Deutsche Bank (IOB: 0H7D.IL – news) and HSBC, although they refused to say whether they had been contacted as part of the CMA inquiry.

It was unclear whether the CMA was examining banks’ ability to manage potential conflicts of interest in their bond trading activities or more straightforward allegations that traders had colluded to fix prices.

The fixed income divisions of global investment banks are a major contributor to their earnings, forming part of the vast ecosystem which has made London Europe’s dominant financial centre for decades.

That status ?is in danger of being eroded by the uncertainty surrounding the UK’s departure from the European Union, with banks such as Barclays (LSE: BARC.L – news) and Credit Agricole (Swiss: ACA.SW – news) shifting some government bond traders from London to other locations on the Continent.

?A CMA inquiry into a key area of London’s financial markets therefore comes at an awkward time for the City, and amid a debate about whether Brexit should pave the way for a lighter-touch approach to regulating the UK’s financial services sector.

It follows a wave of civil and criminal inquiries into other areas of the industry in the decade since the crash, with the most prominent being the billions of pounds in fines handed out to banks for fixing benchmark interest rates such as Libor.

In 2016, the Serious Fraud Office closed an investigation into allegations of fraudulent conduct in the $5trn-a-day foreign exchange market which had focused on a group of traders in a chatroom called ‘the Cartel’.

?Two years earlier, Barclays was fined £26m for failings relating to conflicts of interest in the London Gold Fixing.

One senior banker said that global lenders had been “on notice’ for some time that regulators were examining potential collusion in the bond markets.

Published in Daily Times, November 19^th 2018.