Six banks fined £2.6bn by regulators over forex failings

November, 13, 2014

Six banks have been collectively fined £2.6bn by UK and US regulators over their traders' attempted manipulation of foreign exchange rates.

HSBC, Royal Bank of Scotland, Swiss bank UBS and US banks JP Morgan Chase, Citibank and Bank of America have all been fined.

A separate probe into Barclays is continuing.

The fines were issued by the UK's Financial Conduct Authority (FCA) and two US regulators.

The country's Commodity Futures Trading Commission (CFTC) issued fines of $1.4bn to five banks, while the Office of the Comptroller of the Currency (OCC) added $950m in further fines to three lenders.

Separately, the Swiss regulator, FINMA, has penalised UBS 134m Swiss francs.

Barclays, which had been expected to announce a similar deal to the other banks, said it would not be settling at this time.

"After discussions with other regulators and authorities, we have concluded that it is in the interests of the company to seek a more general coordinated settlement," it said in a statement.

FCA boss Martin Wheatley told the BBC: "This isn't the end of the story."

"The individuals themselves will face the consequences," he said.

Several senior traders at the banks have already been put on leave and the Serious Fraud Office is in the process of preparing potential criminal charges against those alleged to have masterminded the scheme.

Failings 'undermine confidence'

The fines follow a 13-month investigation by regulators into claims that the foreign exchange market - in which banks and other financial firms buy and sell currencies between one another - was being rigged.

The massive market, in which $5.3 trillion worth of currencies are traded daily, dwarfs the stock and bond markets.

About 40% of the world's dealing is estimated to go through trading rooms in London.gtyi

There is no physical forex marketplace and nearly all trading takes place on electronic systems operated by the big banks and other providers.

Daily "spot benchmarks" known as "fixes" are used by a wide range of financial and non-financial firms to, for example help value assets or manage currency risk.

The FCA fined the five banks a total of £1.1bn, the largest fine imposed by it or its predecessor, the Financial Services Authority.

"At the heart of today's action is our finding that the failings at these banks undermine confidence in the UK financial system and put its integrity at risk," the FCA said.

The US regulator, the Commodity Futures Trading Commission (CFTC), has fined the same banks a total of more than $1.4bn (£900m).

"The setting of a benchmark rate is not simply another opportunity for banks to earn a profit. Countless individuals and companies around the world rely on these rates to settle financial contracts," said the CFTC's director of enforcement Aitan Goelman.

Another US regulator, the Office of the Comptroller of the Currency (OCC), fined Citibank, JP Morgan Chase and Bank of America a further $950m (£600m).

All three regulators found the attempted manipulation of the foreign exchange market had been going on for several years, with the FCA saying the failings occurred between 1 January 2008 and 15 October 2013. The CFTC said its investigation found the traders' misconduct took place between 2009 and 2012.

They found certain foreign exchange traders at the banks had coordinated their trading with one another to attempt to manipulate benchmark foreign exchange rates.

The CFTC said traders had used private online chat rooms to communicate. They had disclosed confidential customer order information and trading positions, and altered their positions accordingly to "benefit the interests of the collective group".

The FCA said the "tight knit groups" formed by traders at the different banks had described themselves as "the 3 musketeers", "the A-team" and "1 team, 1 dream".

It said traders had attempted to manipulate the relevant currency rate in the market, for example to ensure that the rate at which the bank had agreed to sell a particular currency to its clients was higher than the average rate it had bought the currency. "If successful, the bank would profit," the FCA added.

CFTC example of private chat room conversation:

Bank R Trader: 4:00:35 pm: well done gents

Bank W Trader 1: 4:01:56 pm: hooray nice team work

Bank U Trader: 4:02:22 pm: nice one mate

Another example:

Bank V Trader: 4:00:51 pm: have that my son

Bank V Trader: 4:00:52 pm: hahga

Bank V Trader: 4:00:56 pm: v nice mate

Bank U Trader: 4:04:53 pm: that worked nice mate

Bank V Trader: 4:05:44 p.m.: big time mate.

BBC

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