Regulators fined five major banks $3.4 billion for
failing to stop traders from trying to manipulate
the foreign exchange market, the first settlement
in a year-long global investigation.
UBS and Citigroup, Royal Bank of Scotland and
JP Morgan all face penalties resulting from the
probe that has also put the largely unregulated $5
trillion-a-day market on a tighter leash. One
regulator gave banks a 30 percent discount for
settling early.
In the latest scandal to hit the financial services
industry, dealers shared confidential information
about client orders and coordinated trades to
make money from a foreign exchange benchmark
used by asset managers and corporate treasurers
to value their holdings. Dozens of traders have
been fired or suspended.
Dealers used code names to identify clients
without naming them and created online
chatrooms with pseudonyms such as “the
players”, “the 3 musketeers” and “1 team, 1
dream” in which to swap information. Those not
involved were belittled. Switzerland’s UBS
swallowed the biggest penalty paying $661 million
to Britain’s Financial Conduct Authority (FCA) and
the U.S. Commodity Futures Trading Commission
(CFTC).
UBS was also ordered by Swiss regulator FINMA,
which also said it had found serious misconduct
in precious metals trading, to hand over 134
million Swiss francs after failing to investigate a
2010 whistleblower’s report.
The misconduct at the banks stretched back to
the previous decade and up until October 2013,
over a year after U.S. and British authorities
started punishing banks for rigging the London
interbank offered rate (Libor), an interest rate
benchmark.
RBS, which is 80 percent owned by the British
government, received client complaints about
foreign exchange trading as far back as 2010.
The bank said it regretted not responding more
quickly to the complaints. The other banks were
similarly apologetic. Their shares were under
pressure in European trading.
Reflecting exasperation that banks failed to stop
the activity despite pledges to overhaul their
culture and controls, the FCA levied a $1.7 billon
fine, the biggest in the history of the City, but
gave a 30 percent discount for early settlement.
The FCA also launched a review of the spot FX
industry that will require firms to scrutinise
trading and compliance and may involve looking
at other markets such as derivatives and precious
metals.
“Today’s record fines mark the gravity of the
failings we found and firms need to take
responsibility for putting it right,” the FCA’s Chief
Executive Martin Wheatley said.
“They must make sure their traders do not game
the system to boost profits or leave the ethics of
their conduct to compliance to worry about.”
Barclays, which had been in settlement talks with
both the FCA and the CFTC, made a “commercial
decision” to pull out of the discussions, the FCA
said. Its investigation of the banks continues.
The FCA said its enforcement activities were
focused on the five banks plus Barclays,
signalling that Deutsche Bank would not face a
fine from it.
Lenders are expecting more penalties, however,
with the U.S. Department of Justice and New
York’s Department of Financial Services still
investigating the scandal. Britain’s Serious Fraud
Office is also investigating and there is the threat
of civil litigation from disgruntled customers.
The CFTC, which regulates swaps and futures in
the United States, fined the five banks more than
$1.4 billion as part of Wednesday’s group
settlement. Since 2012 financial firms have been
fined nearly $10 billion for rigging market
benchmarks.
- Vanguard.
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