LONDON: A void is appearing in the upper reaches of the world’s biggest and most powerful financial market as banks struggle to replace currency traders suspended or fired during a global investigation into allegations of foreign exchange rate-rigging.

Recruitment firms and sources at some of the banks at the centre of the probe say there is huge reluctance to hire externally because replacements could be tainted by allegations of collusion themselves.

That leaves managers with the choice of promoting more junior staff into powerful chief and senior dealer positions or appointing staff from other units of the bank who are less familiar with the daily workings of the $5.3-trillion-a-day forex market.

While the hiatus may be temporary as the investigation unfolds, it comes at a time when machine-driven algorithmic models have already replaced around two thirds of the spot FX dealers operating in London a decade ago, and there are growing concerns about staffing numbers in the industry.

The financial impact for the banks remains unclear, but it adds pressure on a major source of income that is already suffering from a wave of regulations clamping down on the amount of risk dealers can take.

With prospective bans on proprietary trading spelling a change in how lenders do business, the fallout from the scandal further clouds the outlook for many department managers.

"Certainly it might only be 20 people so far who have been suspended, but it has created one hell of a cloud above the industry," said one well-known headhunter in London, who also declined to be named.

"We have had calls from people who haven’t been in the market for a while who think there might be opportunities for them. But I think it’s very difficult. Until more decisions are made, there is going to be a little bit of a stand-off."

Regulatory authorities are looking at whether traders at some of the world’s biggest banks colluded to manipulate benchmark foreign-exchange rates used to set the value of trillions of dollars of investments.

Banks have taken action against 21 traders, and financial institutions including Royal Bank of Scotland, Deutsche Bank and UBS are now said to be reviewing the rules governing how traders make bets with their own money.

All of the banks who have taken action against traders since the start of the probe declined to comment or had no immediate comment on the resulting recruitment and operational issues.

REUTERS