LONDON/ZURICH/NEW YORK: Regulators fined six major banks including Citigroup and UBS a total of $4.3bn for failing to stop traders from trying to manipulate the foreign exchange market, following a year-long global investigation.
HSBC, Royal Bank of Scotland, JP Morgan and Bank of America also face penalties resulting from the inquiry that has put the largely unregulated $5 trillion-a-day market on a tighter leash, accelerated the push to automate trading and ensnared the Bank of England.
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 and traders used obscene language to congratulate themselves on quick profits made from their scams.
Britain’s Financial Conduct Authority (FCA) fined five lenders $1.77bn, the biggest penalty in the history of the City of London, and the US Commodity Futures Trading Commission (CFTC) ordered them to pay a further $1.48bn. “Today’s record fines mark the gravity of the failings we found and firms need to take responsibility for putting it right,” FCA Chief Executive Martin Wheatley said.
Banks had to understand that responsibility for good business practice went beyond their compliance departments, which are tasked with ensuring internal and external rules are followed. “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,” said Wheatley.
The US Office of the Comptroller of the Currency, which regulates banks, also fined the US lenders $950m and was the only authority to penalise Bank of America.
Switzerland’s regulator FINMA ordered UBS, the country’s biggest bank, to pay 134m francs ($139m) after it found serious misconduct in both foreign exchange and precious metals trading. It also capped bonuses for dealers in both units at twice their basic salary for two years.
FINMA will appoint a third party to monitor the bank’s observance of its rules after discovering it had received whistleblower reports about alleged trader misconduct in 2010 but failed to investigate them properly.
Despite Wednesday’s payout, which brings the total fine for benchmark manipulation to over $10bn in two years, banks still face further penalties as the US Department of Justice, the Federal Reserve and New York’s financial regulator conclude their own investigations.
US authorities have tended to be more aggressive than their European counterparts in punishing big banks for misconduct. “We made the judgment that while more information is always better, we didn’t believe that the picture would materially change even if we spent additional years continuing to investigate,” said Aitan Goelman, director of enforcement at the CFTC.
Britain’s Serious Fraud Office is also conducting a criminal investigation and there is the threat of civil litigation from disgruntled customers.
The currency inquiry struck at the heart of the British establishment and the City of London, the global hub for foreign exchange dealing.
The Bank of England said that its chief foreign exchange dealer, Martin Mallet, had not alerted his bosses that traders were sharing information. The British central bank, whose Governor Mark Carney is leading global regulatory efforts to reform financial benchmarks, has dismissed Mallet but said he had not done anything illegal or improper.
It also said it had scrapped regular meetings with London-based chief currency dealers, a sign the BoE wants to put a distance between it and the banks after the scandal.
Reuters
