JPMorgan Chase & Co. agreed last week to pay approximately $100-million to settle a United States antitrust lawsuit in which investors accused 12 major banks of rigging prices in the US foreign exchange market. The settlement occurs amid increasing international scrutiny into currency manipulation by regulatory bodies and follows on the heels of massive fines imposed by international regulators. In November, JPMorgan and several other banks were collectively fined $4.3 billion by U.S., British and Swiss regulatory agencies. Given the potentially severe consequences for financial institutions caught in the regulatory and class actions web, and an apparently heightened focus on this issue north of the border, directors and officers of Canadian issuers must ensure that robust systems are in place to prevent or detect any improper activity of this nature.
The JPMorgan settlement, which is subject to court approval and will be filed with the court this month, is pursuant to a suit accusing banks including Bank of America Corp, Barclays PLC, BNP Paribas SA, Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., HSBC Holdings PLC, Morgan Stanley, Royal Bank of Scotland Group PLC and UBS AG of swapping confidential orders and setting prices through manipulative tactics.
The Bank of Canada conducted an internal investigation last year into potential for currency fixing in Canada as a result increasing global pressure into the issue. The noon rate methodology used by the Bank of Canada for the Canadian dollar has been considered to leave foreign-exchange markets open to manipulation, and the Bank noted it viewed possible collusion between dealers as a “serious concern”.
Bank of Canada governor Stephen Poloz urged markets late last year to do their part in preventing currency manipulation, noting that manipulating the Canadian dollar would create economic “havoc”. His predecessor Mark Carney similarly noted to members of Parliament in 2013 that Canada’s economy was “particularly vulnerable” to a widespread currency war at the government policy level.
Charges faced by international banks have stemmed largely from traders and their supervisors rather than at the executive level; as such, the onus is on executives and directors to monitor the actions of their firms’ employees. In light of increased attention and potential exposure, Canadian firms need to be mindful of intensifying scrutiny into currency manipulation, including close oversight to ensure exchange rate fixing is not occurring.
Firms should accordingly implement compliance programs ensuring employees are properly educated regarding the regulation of and risks associated with currency manipulation, and ensuring any impropriety will be caught by the company. In the absence of proper compliance measures, firms face exposure to substantial liability both from regulatory bodies and litigation.