Following massive penalties for manipulation of Libor, the London interbank offered rate, many of the world's biggest banks are ready to return to normal business practices. However, another investigation is starting to heat up, this time into allegations of illegal fixing of foreign exchange rates.

According to one financial industry trade group, Britain is expected to begin its investigation into foreign exchange rate manipulation shortly following comments from its chief market regulator.  ACI, a group that includes traders and participants in foreign exchange markets, said the priority is for investigators, as well as banks and other officials, to root out wrongdoers as fast as possible.

“The FX market is the largest market, and just like the equity market or the bond market you do get individuals who misbehave,” said David Woolcock, deputy head of the ACI's foreign exchange committee, to Reuters.

Regulators allege that traders at the world's 15 largest banks in the United States, Europe and Asia colluded to use customer information in order to improperly influence the foreign exchange market at daily “fixes”. According to regulators, one of the main violations is that these banks bought or sold currencies ahead of the 4 p.m. “fix,” which often sees exchange rates fluctuate wildly, without clients' permission in order to turn a profit.

In early February, Martin Wheatley, the head of Britain's financial regulator FCA, said that the government's probe of the issue was expected to extend into next year. That extended timeframe is mainly due to the seriousness of the issue, as Wheatley said these charges were “every bit as bad” as the Libor scandal that cost the financial industry a combined $6 billion in fines.

“The only definite in all this is that we have allegations mainly in the press and a series of investigations that have given no concrete sign that a smoking gun has been found. If Wheatley is saying that the allegations are as serious then I suspect that we will see criminal investigations very shortly given the nature of the actual allegations,” Woolcock told Reuters.

But the investigation may not solely be focused on the banks. Along with banking officials, ACI also expects asset management firms to become a part of the investigation.

“It is probable that the focus of this story may now move on to the buy side. Asset and Fund Managers have been keeping quiet on this issue and there are clearly questions to answer,” Woolcock said.

The financial industry has been awash in legal issues lately, and InsideCounsel has had it covered:

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