UK and US Could Slap Forex Fines on Banking Titans on 12 November
Reuters

The Financial Conduct Authority and the US Commodity Futures Trading Commission have fined five banks a combined total of $3.4bn for their role in the manipulation of the foreign exchange market.

The FCA announced that it has fined Citibank $359m (£225.6m, €288m), HSBC $343m, JPMorgan $352m, the Royal Bank of Scotland (RBS) $344m and UBS $371m.

The CFTC issued its own civil monetary penalties, ordering Citibank and JPMorgan to pay $310m each, RBS and UBS $290m each, and UBS $275m.

"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," said Martin Wheatley, chief executive of the FCA.

"They must make sure their traders do not game the system to boost profits or leave the ethics of their conduct to compliance to worry about. Senior management commitments to change need to become a reality in every area of their business.

"But this is not just about enforcement action. It is about a combination of actions aimed at driving up market standards across the industry. All firms need to work with us to deliver real and lasting change to the culture of the trading floor. This is essential to restoring the public's trust in financial services and London maintaining its position as a strong and competitive financial centre."

The FCA said Barclays has not incurred a fine, but remains under investigation over allegations of currency rigging, said the regulator.

The FCA said it will progress its "investigation into Barclays which will cover its G10 spot FX trading business and also wider FX business areas".

The Swiss Financial Market Supervisory Authority (Finma) has also concluded enforcement proceedings against UBS regarding foreign exchange trading conducted in Switzerland after finding that the bank's employees in Zurich at least attempted to manipulate foreign exchange benchmarks over an extended period of time.

Finma has ordered UBS to disgorge a total of $139m. It has also initiated enforcement proceedings against eleven persons involved in the case.

What Happened?

The FCA said that between 1 January 2008 and 15 October 2013, the banks had ineffective controls to allow G10 spot FX traders, which is a systemically important financial market, to "put their banks' interests ahead of those of their clients" by attempting to rig rates.

This led to attempting to fix rates at a more favourable level at the behest of clients and other market participants and the wider UK financial system.

The watchdog added that the banks failed to manage obvious risks around confidentiality, conflicts of interest and trading conduct.

This therefore led to traders sharing information about clients' activities, which they had been trusted to keep confidential, as well as the attempted manipulation of G10 spot FX currency rates.

Bankers colluded with other traders at different firms which also led to clients being at a disadvantage.

"Firms could have been in no doubt, especially after Libor, that failing to take steps to tackle the consequences of a free for all culture on their trading floors was unacceptable," said Tracey McDermott, the FCA's director of enforcement and financial crime.

"This is not about having armies of compliance staff ticking boxes. It is about firms understanding, and managing, the risks their conduct might pose to markets.

"Where problems are identified we expect firms to deal with those quickly, decisively and effectively and to make sure they apply the lessons across their business. If they fail to do so they will continue to face significant regulatory and reputational costs."

These fines are the largest ever imposed by the FCA, or its predecessor the Financial Services Authority (FSA).

"In addition to taking enforcement action against and investigating the six firms where we found the worst misconduct, we are launching an industry-wide remediation programme to ensure firms address the root causes of these failings and drive up standards across the market," said the FCA in a statement.

"We will require senior management at firms to take responsibility for delivering the necessary changes and attest that this work has been completed.

"This complements our ongoing supervisory work and the wider reforms to the fixed income, commodity and currency markets which are the subject of the UK Fair and Effective Markets Review."

The FX Market

The FX market is one of the largest and most liquid markets in the world with a daily average turnover of $5.3tn, 40% of which takes place in London.

The spot FX market is a wholesale financial market and spot FX benchmarks (also known as "fixes") are used to establish the relative value of two currencies. Fixes are used by a wide range of financial and non-financial companies, for example to help value assets or manage currency risk.

The FCA's investigation focused on the G10 currencies, which are the most widely-used and systemically important, and on the 1600 hours WM Reuters and 1315 hours European Central Bank fixes.

Source: FCA