London - Banks are struggling to stamp out activity at the root of alleged manipulation in foreign exchange markets, the chairman of Britain's Financial Conduct Authority (FCA) watchdog told a parliamentary committee on Tuesday.
The FCA and US regulators are investigating allegations that dealers at major banks colluded and manipulated key reference rates in the $5.3 trillion a day foreign currency market, the world's biggest and least regulated.
"I think all the banks are really struggling as to how they stamp out that alleged activity," Martin Wheatley said. "I know all of them are deeply embarrassed by what's happened and want to see that change. I know that they have put in place remedial action."
However Wheatley did not identify any specific issues the banks were struggling with and did not name any of the banks affected.
Ethical standards in the foreign exchange market have been put under a harsh spotlight since investigators in the United States, Europe and Asia started examining whether small groups of traders colluded to rig prices by sharing information about their clients' orders.
The global inquiry has not yet concluded but the review has shaken the industry, with dozens of top dealers put on leave or fired and banks under pressure to sharpen up oversight of their traders.
Since regulators started investigating the market, banks have tightened surveillance of employees' communications, including clamping down on the use of online chatrooms, where traders were alleged to have swapped information, and have handed over reams of transcripts to regulators to help them in their probe.
Source familiar with the inquiry have told Reuters that the tone of messages between foreign exchange traders was similar to the sort of exchanges used by traders to manipulate the London interbank offered rate or Libor.
The Libor scandal has cost banks such as Barclays and UBS some $6bn in penalties and banks are bracing themselves for potentially more fines and litigation stemming from the FX probe.
"It's very unfortunate that we've had what appears to be abuse in a number of sectors in the market follow on from the Libor fines," Wheatley said.
Speaking more broadly, Wheatley said regulators were looking at what else needed to be done to boost confidence in wholesale lending markets in the wake of the Libor and forex probes.
"We have not solved it yet. It's still a work in progress," Wheatley said. "It's such a priority for us to clean up these markets and give people their confidence back."
There are likely to be legislative changes after a report into Britain's wholesale markets is published in June 2015, he added.