Nov 13, 2014

    Five banks fined $4b for forex rigging


    GLOBAL regulators announced yesterday US$3.2 billion (S$4.1 billion) in fines against five major United States and European banks for attempting to manipulate foreign-exchange markets.

    The hefty fines - unveiled in London, Washington and Zurich - follow a worldwide probe into the scandal over the US$5.3-trillion-per-day forex market, around 40 per cent of which takes place in the British capital.

    British banks HSBC and Royal Bank of Scotland (RBS), US peers Citigroup and JPMorgan Chase, and Swiss lender UBS have all been fined by Britain's Financial Conduct Authority (FCA) and the US Commodity Futures Trading Commission (CFTC).

    The FCA hit the five banking giants with a total penalty of £1.1 billion (S$2.3 billion), while the CFTC fined them US$1.4 billion.

    The Swiss Financial Market Supervisory Authority also announced a settlement of 134 million Swiss francs (S$179 million) with UBS over the matter.

    Barclays - which was at the heart of the 2012 Libor rate-rigging affair - was not included in the settlements, but it added that it continued to hold talks with regulators "with the objective of bringing this to resolution in due course".

    A string of scandals, including Libor rigging and product misselling, has damaged the reputation of major banks, which had also helped sparked the notorious 2008 global financial crisis that led to a worldwide recession.

    "The FCA has imposed fines totalling £1,114,918,000... on five banks for failing to control business practices in their G10 spot foreign-exchange (FX) trading operations," the regulator said in a statement.

    "The G10 spot FX market is a systemically important financial market. At the heart of today's action is our finding that the failings at these banks undermine confidence in the British financial system and put its integrity at risk."

    The FCA said that, between Jan 1, 2008 and Oct 15 last year, it found that "ineffective controls" at the five banks allowed their G10 forex traders "to put their banks' interests ahead of those of their clients, other market participants and the wider British financial system".

    Traders at the different banks "formed tight-knit groups in which information was shared about client activity", it added.

    The British regulator said traders used code to identify clients without naming them, such as The 3 Musketeers, The Players and The A-team.

    "The banks failed to manage obvious risks around confidentiality, conflicts of interest and trading conduct," the FCA said.

    "These failings allowed traders at those banks to behave unacceptably. They shared information about clients' activities, which they had been trusted to keep confidential, and attempted to manipulate G10 spot FX currency rates, including in collusion with traders at other firms, in a way that could disadvantage those clients and the market."

    At the same time, the CFTC announced in a separate statement that the five banks were being punished for "attempted manipulation of, and for aiding and abetting other banks' attempts to manipulate, global foreign-exchange benchmark rates to benefit the positions of certain traders".

    It added that Citi, HSBC, JPMorgan, RBS and UBS had "coordinated trading with other banks in private chat rooms in their attempts to manipulate" the market.

    The CFTC also ordered the banks to "cease and desist from further violations, and take specified steps to implement and strengthen their internal controls and procedures... to ensure the integrity of their participation in the fixing of foreign-exchange benchmark rates and internal and external communications by traders".