FCA imposes record fines on banks over forex manipulation

In November 2014, financial regulator the Financial Conduct Authority (FCA) imposed its largest ever fines on five banks, after they were found to have manipulated the foreign exchange markets.

UBS was fined £233,814,000, Citibank £225,575,000, JPMorgan Chase £222,166,000, The Royal Bank of Scotland (RBS) £217 million and HSBC £216,363,000. This makes for a total fine of £1.1 billion for the five institutions combined from the UK regulator.

UBS was fined an additional CHF 134 million by the Swiss regulator, FINMA; while the Commodity Futures Trading Commission in the United States fined the banks a combined total of $1.4 billion – $310 million each for JP Morgan and Citibank, $290 million each for UBS and RBS and $275 million for HSBC. The Office of the Comptroller of the Currency in the US fined Citibank and JP Morgan $350 million each, whilst also fining Bank of America (who were not fined by any other regulator) $250 million. This takes the combined fine for the six banks to $4.3 billion.

Investigations into Barclays regarding this matter are ongoing.

Traders at the banks are said to have manipulated a market known as the ‘G10 spot FX market’, while the banks themselves failed to provide adequate training to these traders, or to supervise their activities sufficiently.

Dealers at different banks shared confidential information and co-ordinated trades, often using online chatrooms. Many attempts were made to confect an artificial demand for a currency, thus pushing up its price. The FCA final notices are full of examples of crude messages in which traders congratulated themselves on their activities, such as “have that my son” and “that worked nice mate.” When one trader believed a colleague at another bank had failed to co-operate, he wrote “u are useless…How can I make free money with no ******* heads up.”

The issues continued over a period of almost six years, from January 2008 to October 2013, and given how recently this practice continued, it calls into question previous claims from banks to have cleaned up their act. October 2013 is also more than a year after banks including RBS, UBS and Barclays were fined by the FCA for manipulation of the LIBOR interest rate.

The FCA has also launched a remediation programme across the banking industry, where banks will be required to make changes to their practices and procedures, and where senior management will need to provide attestations to the regulator confirming that the necessary work has been done.

Martin Wheatley, chief executive of the FCA, said:

“The FCA does not tolerate conduct which imperils market integrity or the wider UK financial system. Today’s record fines mark the gravity of the failings we found and firms need to take responsibility for putting it right.”

Ross McEwan, chief executive of RBS, said:

“To say that I am angry about this misconduct is an understatement. What this has shown me is that we have had people working in this bank that did not know right from wrong – or worse, didn’t care about the distinction. This small number of people put their interests ahead of that of their clients. When the Board and my management team first found out about these allegations last year we immediately instructed our legal and compliance teams to give their full cooperation to the authorities to get the bottom of the issues.”

Mr McEwan added:

“Those who have been found lacking in conduct or accountability terms will be dealt with appropriately, including through claw back, award forfeiture, or through formal disciplinary procedures. There is no place for this misconduct at the RBS I am building with my colleagues and I apologise to all of our customers.”

The Serious Fraud Office and the US Department of Justice have commenced criminal investigations into the traders’ activities, while the spectre of litigation to recover losses suffered by bank customers was raised by a number of lawyers.

“The fines alone are not sufficient, and there is plenty more work for the regulator to do to ensure that those customers affected are properly compensated,” said Stevie Loughrey, a lawyer at London firm Carter-Ruck. “The fines will offer no comfort whatsoever to those bank customers who have suffered significant losses,” he added.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.