LONDON Financial Conduct Authority (FCA) is working closely with the London Metal Exchange (LME) on the exchange's efforts to fix its metals warehousing system, the FCA said on Monday.
The FCA comments follow a U.S. Senate Banking Committee hearing last week in which commercial banks came under fire for their multibillion-dollar commodity trading operations and their control over oil pipelines, power plants and metals warehouses.
"The FCA has been, and continues to be, closely engaged on warehousing issues with the exchange and the various initiatives it has put in place over recent years," a spokesman for the FCA, which regulates the LME, said on Monday.
The LME, the world's biggest marketplace for industrial metals also including copper and zinc, on July 1 proposed an overhaul of the global warehousing system it oversees.
Its industrial clients blame the exchange for letting long queues build up for material they have bought via the LME and want to withdraw from warehouses in its network. Users can wait for up to a year to get their material.
Big aluminum buyers represented by MillerCoors, the second largest brewer in the U.S., told the U.S. hearing that the banks' control of metal warehouses that are part of the LME network drove up their costs by as much as $3 billion last year by distorting supplies.
Tim Weiner, MillerCoors global risk manager, criticised inaction by the LME over warehousing and a lack of regulation.
The LME previously "dismissed" Weiner's proposals to ease wait times, he told the hearing last week, and U.S. and UK regulators told him they were not certain about their authority over warehousing.
The LME, as a recognised investment exchange like the London Stock Exchange, is supervised and regulated by the FCA.
But while the FCA regulates the exchange and the futures derivatives markets for commodities, it does not regulate the physical market and it does not regulate the warehouse firms themselves.
The FCA also does not deal with competition issues. That rests with competition watchdog the Office of Fair Trading, which would refer any suspected transgressions to the competition commission.
(Reporting by Susan Thomas; editing by Patrick Graham)