BARROWED IN: Foreign Exchange activity, including foreign exchange atos, is being stopped at all banks as the Government works to halt its “significant and systemic” foreign exchange and asset protection risks.
The Government has announced it will halt foreign exchange activities for financial institutions that fail to ensure the integrity of foreign exchange markets and that their operations are safe.
“While it is always the case that foreign exchange transactions are not always fully compliant with domestic and international financial standards, we will continue to monitor the situation and take appropriate action to ensure that foreign exchanges are properly safeguarded,” the Government said in a statement.
Prime Minister Malcolm Turnbull said the Government had “taken decisive action to protect Australians from financial instability”.
“As a result, we are working to ensure foreign exchange is not used for illegal or fraudulent purposes, and the Government will continue monitoring the situation closely,” he said.
Foreign exchange activities include trading and investing in foreign exchange contracts, and clearing foreign exchange for investment.
Affected banks include: AAP, Australian, BNP Paribas, Bank of America, Commonwealth Bank, Citibank, Credit Suisse, DBA Merrill Lynch, Deutsche Bank, HSBC, Morgan Stanley, NAB, National Australia Bank, PWC, PwC, Santander, State Bank of New South Wales, State of Tasmania, TSB Bank, UBS, Western Union, Bankwest, and Western Union (Australia).
Foreign investment is banned.
In July, Mr Turnbull said foreign exchange trading had been “deteriorating” but he expected it to return to a healthy state by the end of this year.
However, the Government has warned that it could face a backlash from foreign investors and banks.
It is likely the Government could face legal action in the future if it does not stop foreign exchange activity, the statement said.
“The Government is committed to protecting Australians from the risks of financial instability,” the statement read.
There were about 7.4 million transactions for foreign exchange in the financial year to September.
An Australian Financial Review analysis found foreign exchange was a key way foreign businesses were getting money to their customers overseas.
Its estimated about $US1.3 billion worth of financial products and services was traded through foreign exchange services, and foreign exchange accounts were used by more than 300,000 Australian businesses.
About a quarter of the foreign exchange trade was done by the banks and their affiliates, which made up about 10 per cent of all foreign exchange dealings.
While foreign exchange trades were increasing, foreign investment was slowing.
Investment in foreign currency contracts increased from $3.4 billion to $4.2 billion in the three months to September, the most recent period for which figures are available, according to the Australian Financial Survey.
Last year, the Reserve Bank said the foreign currency markets were not fully compliant.
Mr Turnbull said a report by the Treasury, which was published in April, had revealed the risks from foreign exchange.
He said the Treasury had recommended the Government move to a foreign exchange regime that did not involve “a bank or exchange”.
Mr Cameron said it was important to focus on the financial health of the financial system.
This week, the Treasury’s report said foreign currency transactions should not be made for illegal purposes, such as the creation of “fictitious” money or the laundering of illicit proceeds.
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