The spot FX market is a different beast than the credit markets, but industry experts already see the likely outcome of the investigation by the UKs Financial Conduct Authority (FCA) and the numerous US regulatory and law-enforcement agencies. In some ways it seems similar to what weve seen with the Libor manipulation investigation over the past few years, says Kevin McPartland, head of market structure research at analyst firm Greenwich Associates. Its a different market with different mechanics, but from the regulatory perspective, its a search to uncover the truth. Since the FCA began its initial investigations concerning the alleged manipulations of the MW/Reuters rates in June, as reported by Bloomberg, various US government agencies and regulators have started their own investigations. In October, the US Department of Justice and the Federal Bureau of Investigation commenced their separate investigations into the matter. Earlier this month, officials of the US Federal Reserve Bank and the US Office of the Comptroller of the Currency began speaking with Citi representatives regarding their own investigations. On Friday, HSBC and Citi suspended FX traders as US regulators stepped up a London-based investigation, the Wall Street Journal reported.Despite the ever-growing alphabet soup of new investigators, Javier Paz, a senior analyst at industry research firm Aite Group, expects the FCA will continue to set the tone for the overall investigation. Trading volumes speak volume and approximately 40% to 45% of the spot FX market trades in London, he says. US regulators could have some influence on the investigation, but the FCA is the 800lb gorilla. Finding that proper tone is going to be a delicate balancing act, because this is the first industry-wide investigation launched by the FCA since its inception in 2012, Paz says, adding: It needs to prove it is a credible regulatory without veering into regulatory overkill. Both industry watchers doubt that wide-spread criminal prosecutions will result from the multiple investigations, due to the complex nature of the market and the difficulty of finding a smoking gun. Expect to see some large cheques written, says Paz. Its going to be difficult to prosecute individuals. The law enforcement would have to rely on racketeering and other charges. Whilst dealers worry about the regulatory risk to which their traders exposed the firms, industry watchers look to knock-on results of the numerous investigations. Its not just about getting to the bottom of what happened, says Greenwich Associates McPartland. Its about finding a solution so that the market can move forward. It involves putting in new standards and processes of how this market transacts, which is not a small thing. Unlike listed and over-the-counter (OTC) derivatives, the spot FX market will prove difficult to regulate due to its geo-political underpinnings, he says, adding: In the early days of Dodd-Frank, there was talk of completely exempting FX because of those reasons. When structural reforms come to the spot FX market, neither analyst is willing to speculate whether the main changes will be driven from within the market or will be imposed on the market similarly to the UKs 2012 Financial Service Act. Regulators will encourage the market to adopt changes and the market understands that it is better to self-regulate change than waiting for regulators to impose their changes, says McPartland. A prime example of industry-led reform, he cites, is the decision by the International Swaps and Derivatives Association (ISDA) to suspend its annual swaps rate ISDAfix benchmark, which relied on bank-summited quotes, in favour of a methodology that would rely upon executed trade data from different trading platforms. As more of the OTC derivatives markets moves into a more transparent and electronically traded environment, it will be easier to do that in the rates, FX, credit and commodity markets hopefully, says McPartland. No matter what structural and regulatory changes the industry or regulators make, there is no way to stop bad actors who intend to do harm, according to Aite Groups Paz. So much happens on the voice side of the market that regulators wont be able to stop the interaction among dealers, he explains. They need to come up with a better way to catch the bad apples. One such solution might be the random scrutiny of trades.