Global financial markets have suffered a series of shocks following revelations of multiple scandals and manipulations committed by some of the largest and most prestigious financial institutions. Not only have these sullied the reputations of these storied institutions, but also highlights the fact that alternatives have become more pressing than ever before.

The latest scandal involves six major banks that control a substantial share of transactions and manage huge investments, including those made by sovereign funds. US courts and the British Financial Control Authority recently convicted and fined JPMorgan, Barclays, Citigroup and Royal Bank of Scotland a combined total of $5.7 billion for manipulating foreign exchange rates and making astronomical profits at the expense of other parties. The concerned institutions have admitted to all these abuses. It must be noted that other fines totalling more than $10 billion have been imposed in recent years on global financial services majors.

Between 2007-13, these institutions along with Swiss banking giant UBS were fined $547 million in two instalments, for sharing confidential information on buy and sell orders made by their clients and thus engage in coordinated trading to increase their profits.

They manipulated the exchange rates of the US dollar, euro and other currencies. Obviously, such practices are banned and considered crimes as per the financial market regulations. Other violations by these banks included forging futures contract related transactions.

These practices have damaged the reputation of the global financial system. If such practices were committed by leading banks with high reputations, what would be the practice of smaller ones and may not care that much about their professional reputation because their activities are limited to domestic transactions.

It is true that smaller institutions do not have the same financial capacity that allows them to carry out bigger manipulations. But the sum total of such dealings can affect the foreign exchange market in one way or another.

More seriously, the violating banks have manipulated the Libor (London interbank exchange rate), the most common interest rate index and which sets the interbank rates. These cast doubts about one of the most important pillars of global banking, which can cause serious losses to many banks and dealers in different countries.

Are these big fines enough to put an end to manipulations? We don’t believe it, because through hefty, they are still only a portion of the huge profits reaped from the manipulations.

Yet, Arab, Chinese, European and Asian banks and investment funds have paid a price for such manipulations. This requires revising the global financial system and developing more effective regulations that help reduce fraud and outright manipulation.

If this is the case, would this justify the attempts by China and the BRICS grouping — comprising India, China, Russia, Brazil and South Africa — to create competitive financial institutions, such as the Asian Infrastructure Investment Bank and the BRICS Investment Bank?

This is besides developing their banks and financial institutions as alternatives to the existing global players — an approach, which is opposed strongly by Washington.

The manipulations carried out by major banks, which increased significantly in recent years, in fact helps to accelerate the required change in the international financial system. Developing countries that depend on aid may not feel the heavy weight of such manipulations, but emerging economies that are rich in natural resources, particularly oil and gas, feel disadvantaged by the loss of part of their wealth due to the ongoing manipulations and scams.

Until the required change happens, investments attained by developed countries will continue to rely on these big banks to manage part of their assets. This requires them to reduce potential losses through the enactment of new laws and stringent selection of investment institutions for management and control of their wealth.

This will also lead to increased cooperation between banks and financial institutions in the emerging countries.

Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.