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Regulators fine five banks over ‘failings’ following forex investigation

Out-Law News | 13 Nov 2014 | 3:00 pm | 2 min. read

Regulators in the UK, US and Switzerland have imposed fines worth a combined total of £2.1 billion on five banks over foreign exchange failings. 

The UK’s Financial Conduct Authority (FCA) said it had imposed fines totalling £1,114,918,000 on the five banks “for failing to control business practices in their G10 spot foreign exchange (FX) trading operations”.

The FCA said the banks and fines were Citibank N.A. (£225,575,000), HSBC Bank Plc (£216,363,000), JPMorgan Chase Bank N.A. (£222,166,000), The Royal Bank of Scotland Plc (£217,000,000) and UBS AG (£233,814,000).

In relation to Barclays Bank Plc, the FCA said “we will progress our investigation into that firm” which will cover Barclays’ G10 spot FX trading business and wider FX business areas.

The FCA said: “The G10 spot FX market is a systemically important financial market. At the heart of today’s action is our finding that the failings at these banks undermine confidence in the UK financial system and put its integrity at risk,” the FCA said.

In addition to taking enforcement action against and investigating the six firms where the “worst misconduct” was found, the FCA said: “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. We will require senior management at firms to take responsibility for delivering the necessary changes and attest that this work has been completed.”

The remediation programme will complement “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 FCA said.

The FCA said: “Between 1 January 2008 and 15 October 2013, ineffective controls at the banks allowed G10 spot FX traders to put their banks’ interests ahead of those of their clients, other market participants and the wider UK financial system. The banks failed to manage obvious risks around confidentiality, conflicts of interest and trading conduct.”

"These failings allowed traders at those banks to behave unacceptably,” the FCA said. “They shared information about clients’ activities which they had been trusted to keep confidential and attempted to manipulate G10 spot FX currency rates, including in collusion with traders at other firms, in a way that could disadvantage those clients and the market.”

The FCA said the fines are the biggest it has ever imposed and bigger that any imposed by its predecessor, the Financial Services Authority. “This is the first time the FCA has pursued a settlement with a group of banks in this way. We have worked closely with other regulators in the UK, Europe and the US.”

The FCA said the Swiss regulator, FINMA, had imposed a fine of 134m Swiss francs ($138m) on UBS AG, while in the US the Commodity Futures Trading Commission had imposed a total financial penalty of more than $1.4bn on the banks. Also in the US, the Office of the Comptroller of the Currency (OCC) had imposed a total financial penalty of $700m on Citibank N.A. and JPMorgan Chase Bank N.A, the FCA said.

FCA chief executive officer Martin Wheatley said: “Today’s record fines mark the gravity of the failings we found and firms need to take responsibility for putting it right."

Wheatley said: “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.”

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