On 12 November 2014 it was announced that HSBC, Royal Bank of Scotland, UBS, JP Morgan Chase and Citibank have been collectively fined £2 billion by UK and US regulators for manipulation of foreign exchange rates.
The fines follow a 13 month investigation by regulators into claims that the foreign exchange market was being rigged. The FCA fined the five banks a total of £1.1 billion, the largest fine ever imposed by the FCA. The US regulator, CFTC, has fined the five banks a total of more than £900,000. Separately the Swiss regulator, FINMA, has penalised UBS 134M Swiss francs.
The regulators found that certain foreign exchange traders at the banks had co-ordinated their trading with one another to attempt to manipulate benchmark foreign exchange rates. Traders used private online chat rooms to communicate and disclose confidential customer information and trading positions operating under aliases such as ‘the three musketeers’, ‘the A team’, ‘the players’ and ‘1 team, 1 dream’.
The traders attempted to manipulate the relevant currency rate in the market to ensure the rate at which the bank had agreed to sell was higher than the average rate it had bought the particular currency for.
At one of the banks traders had colluded with traders from at least three other banks to attempt to drive the fix for the sterling-dollar rate lower. Traders had shared confidential information about client orders prior to the fix, and then used this information to attempt to manipulate the fix downwards. The sterling/dollar exchange rate fix fell from £1.6044 to £1.6009 in this example, making the particular bank a $162,000 profit.
The Banks agreed to settle at an early stage and therefore qualified for a 30% discount under the FCA’s settlement discount scheme. The Banks have issued statements confirming disciplinary and suspension action for the individual employees.
Barclays were expected to announce a similar deal however instead confirmed that it would not be settling at this time. The Bank of England, which had previously been accused of knowing about the foreign exchange scandal, published a separate report clearing its officials.
The penalties imposed are intended to show that the FCA will not tolerate conduct that undermines the integrity of this crucial market or the wider UK financial system. In addition to the FCA’s enforcement action it has also announced an industry wide remediation programme to ensure that the banks address the root causes of these failings and drive up standards across the market.
The settlements reached by the Banks helps to bring further closure on the on-going regulatory investigations of historic bank conduct. Such closure is essential to allow the Banks to try and restore public confidence and help both the UK and US to continue to pull out of the recessionary conditions which have effected the global economy.