Exclusive: Global regulators eye forex benchmarks after rigging probe WASHINGTON (Reuters) - A powerful global financial regulator will scrutinize benchmarks used in currency trading, it said on Friday, a first sign that the largely unregulated market may be kept on a tighter leash after allegations of manipulation. The Financial Stability Board, which coordinates regulation for the Group of 20 leading economies, is already working on a reform of interest rate benchmarks after the Libor interbank rate-fixing scandal. "The FSB is in the process of defining the work it will do on issues around FX benchmarks," the Swiss-based agency told Reuters in an emailed statement. Britain's Financial Conduct Authority (FCA) and the U.S. Department of Justice have been investigating allegations that traders at some of the world's biggest banks manipulated the largely unregulated $5.3 trillion-a-day foreign exchange market. The continuing probe into the Libor interest rate brought to light how easy it is to manipulate the widely used benchmark and has already triggered heavy fines for banks including UBS and Barclays. The London interbank offered rate, known as Libor, is compiled from banks submitting quotes for interest rates at which they say they could borrow and is published by the British Bankers' Association. The FSB last July set up two groups to make recommendations to reform Libor and similar rates, which underlie trillions worth of contracts ranging from student loans and mortgages to complex financial derivatives. One group consists of regulators, and another - chaired by Darrell Duffie, a finance professor at Stanford University - brings together market participants. The groups are due to make recommendations in June. A U.S. market regulator has said Libor should be scrapped because it is based on a hard-to-control survey of market participants. Others take a less drastic stance, because the benchmark is so widely spread. The FSB is expected to announce the efforts to look at foreign exchange markets "pretty rapidly," a source familiar with the situation said, but has not yet decided who would be in charge or what shape the work would take. "That is something for the FSB to decide and they would delegate to whomever they felt was suitable," this person said, asking not to be identified by name. In the foreign exchange probe, groups of senior traders are alleged to have shared market-sensitive information relevant for the popular WM/Reuters "fix," or London fix, which is set at 4 p.m. London time, using actual trades. WM/Reuters rates are compiled using data from Thomson Reuters and other providers and are calculated by WM, a unit of State Street Corp. Thomson Reuters is the parent company of Reuters News, which is not involved in the fixing process. In an effort to avoid the further wrath of authorities, banks with major currency operations such as Citi, Deutsche, JPMorgan and others have curtailed the use of chatrooms widely used by these traders. The FSB's recommendations, which will carry huge weight in the market, mark a shift from December, when FCA Chief Executive Martin Wheatley said any effort to regulate the market "would be a big policy change," and that regulators were at a very early stage. Reporting by Douwe Miedema; Editing by Karey Van Hall and Leslie Adler