14 November 2014
Five major global banks have been fined in the billions for forex misconduct.
Citibank, HSBC, JP Morgan Chase, The Royal Bank of Scotland (RBS) and UBS have been fined £1.1 billion by the Financial Conduct Authority (FCA) and $1.4 billion by the US Commodity Futures Trading Commission (CFTC).
The FCA has fined Citibank £226 million ($358 million), HSBC £216 million ($343 million), JPMorgan Chase £222 million ($352 million), RBS £217million ($344 million) and UBS £234 milion ($371 million). The UK regulator failure to control business practices in their G10 spot foreign exchange (FX) trading operations as the reason it imposed fines for these five banks.
The US regulator cited attempted manipulation of foreign exchange benchmark rates as its reason for imposing monetary penalties on the financial institutions. CFTC fined Citibank and JPMorgan £198 million ($310 million) each, RBS and UBS £185 million ($290 million) each and HSBC £175 million ($275 million).
The FCA has revealed that between 1 January 2008 and 15 October 2013, ineffective controls at the five banks allowed G10 spot forex traders to put their banks’ interests ahead of those of their clients, other market participants and the wider UK financial system. The regulator added that 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. 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.
Along with these fines, the FCA has launched an industry-wide remediation programme to ensure firms address the root causes of these failings and drive up standards across the market. Senior management at firms will be required to take responsibility for delivering the necessary changes and attest that this work has been completed.
Martin Wheatley, chief executive of the FCA, said firms ‘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.’
According to CFTC, one of the primary benchmarks that the forex traders attempted to manipulate was the World Markets/Reuters Closing Spot Rates (WM/R Rates). The WM/R Rates, the most widely referenced FX benchmark rates in the United States and globally, are used to establish the relative values of different currencies, which reflect the rates at which one currency is exchanged for another currency.
Aitan Goelman, the CFTC’s Director of Enforcement, stated: ‘The setting of a benchmark rate is not simply another opportunity for banks to earn a profit. Countless individuals and companies around the world rely on these rates to settle financial contracts, and this reliance is premised on faith in the fundamental integrity of these benchmarks. The market only works if people have confidence that the process of setting these benchmarks is fair, not corrupted by manipulation by some of the biggest banks in the world.’