Since November 2014, seven global banks have paid more than $10 billion (£6.4bn) to U.S. and European regulators to resolve allegations of collusion in the FX market.

The Foreign Exchange (“FX”) market is the largest financial market in the world, with a daily average turnover of $5.3tn, 40% of which is transacted in London.

The FX market

FX transaction are often executed using the “spot rate”, the market price for a given currency pair, quoted in the form of a price at which the bank will sell (bid) and buy (ask). The difference, or “spread”, between the bid and ask price is effectively the fee levied by the bank for executing the FX transaction.

Alternatively, investors can ask for the transaction to be executed at the “fix rate”, based on one of several benchmarks. Most transactions executed at the fix rate are based on the WM/Reuters “Closing Spot Rates”.

Manipulation of the FX market

Regulators in at least eleven countries have launched investigations (U.S, UK, Germany, Switzerland, Hong Kong, South Korea, Singapore, Australia, New Zealand, South Africa and Brazil). These investigations have uncovered evidence suggesting that, between at least January 2008 and October 2013, banks have inappropriately shared marketsensitive information with one another to manipulate the WM/ Reuters Closing Spot Rates and the bid/ask spreads. FX traders at the colluding banks, typically communicate via instant messages in chat rooms and suspiciously referred to themselves as “The Cartel”, amongst other names.

Regulatory fines in 2014

One year ago, on 12 November 2014, U.S., British and Swiss regulators imposed total fines of $4.3bn (£2.6bn) on Bank of America, Citigroup, HSBC, JPMorgan Chase, RBS and UBS for their misconduct in FX markets between January 2008 and October 2013. The regulators’ investigations focused on G10 spot FX currency rates, which include U.S. Dollar, Euro and British Pound, amongst other currencies.

Regulatory fines in 2015

On 20 May 2015, U.S. and British regulators imposed total fines of $5.8bn (£3.7bn) on six banks. Citigroup, Barclays, JPMorgan Chase, RBS and UBS entered guilty pleas to criminal violations and agreed to pay more than $2.7bn to the U.S. Department of Justice to resolve their investigations. The Federal Reserve imposed further fines of more than $1.6bn on the same five banks and $205m on Bank of America. Barclays will also pay $1.3bn in fines as part of settlements with the NY Department of Financial Services, the Commodity Futures Trading Commission and the UK Financial Conduct Authority.

Ongoing EU investigation

In October 2013, Joaquin Almunia, the former EU Competition Commissioner, stated that the European Commission had learned of activities that “could mean violation of competition rules around the possible manipulation of types of exchange rate”.

Hausfeld FX action in the U.S.

Numerous actions were filed in the United States seeking to recover damages for the banks’ misconduct. On 13 February 2014, the Court consolidated these cases into a single action: In re Foreign Exchange Benchmark Rates Antitrust Litigation, 13-cv-7789, and Hausfeld LLP was appointed colead counsel. Hausfeld has announced settlements with nine banks on behalf of U.S. investors, totaling more than $2 billion. Hausfeld’s investigation in the U.S. unearthed additional evidence suggesting that, among other facts, the banks may have been colluding as far back as 2003. This additional evidence is reflected in an amended complaint filed in Court on 16 July 2015. 

Impact on FX market participants

Government findings indicate that FX market participants, including financial investors and corporates, were likely denied competitive exchange rates because of the banks’ collusive practices and that the banks were able to generate illicit profits at their clients’ expense.

Hausfeld FX acƟon in London

Hausfeld has already been instructed by clients to commence an acƟon seeking damages from the banks in respect of the manipulation of the FX market, and it is set to bring an action in London. Investors who entered into FX transactions between 2003 and 2013 are encouraged to contact Hausfeld for an initial assessment of their potential claim. 

Experts cite the following techniques which FX traders allegedly used to manipulate currency rates:

  • Front running: traders agreed that when they received customer orders, they would “front run” on customer informaƟon as a group, and then trade their own positions before executing their customers’ market-moving trades;
  • Banging the close: traders broke up large customer orders into small trades and concentrated the trades in the moments before and during the 60-second fixing window in order to spike the published rates up or down; and
  • Painting the screen: traders placed phony orders with one another to create the illusion of trading activity in a given direction in order to move rates prior to the fixing window. After the WM/Reuters Closing Spots Rates were calculated, the colluding banks reversed those trades.