Banks Fined $3.2 Billion in Foreign Exchange Investigation
Regulators in Switzerland, the United Kingdom, and the United States were fined $3.2 billion in civil penalties on five banks that reportedly tried to manipulate the $5.3 trillion a day foreign exchange currency trading market.
According to regulators, foreign exchange traders took advantage of private chat rooms on the internet where information was shared pertaining to trading activities of their firms’ clients. The chat rooms were used to devise manipulation strategies on exchange rates for pairs of top world currencies to include the Japanese yen and US dollar, as well as the euro and US dollar.
JPMorgan Chase was fined $352 million, HSBC $343 million, Citibank $358 million, UBS $371 million, and the Royal Bank of Scotland $344 million, as stated by the Financial Conduct Authority (FCA) in the United Kingdom.
In addition, more than $1.4 billion was imposed in penalties. The Commodity Futures Trading Commission (CFTC) stated that both JPMorgan Chase and Citibank were fined $310 million, HSBC $275 million, and RBS and UBS $290 million each. UBS was also ordered to pay $139 million in penalties by the Swiss regulator, FINMA.
Barclays pulled out from the settlement discussions, stating it considered a deal on terms that were similar to those announced. However, after talking with other regulators and authorities, Barclays chose to find a more general coordinated settlement.
The FCA also stated that the investigation would continue specific to Barclays and that an industry-wide remediation program was being launched to make sure companies addressed core problems of failing and drive-up standards. The fines were the largest ever imposed by regulators.
Traders at the mentioned banks shared proprietary client information but also tried to manipulate spot foreign exchange rates for 10 of the main currencies. From January 2008 through October 2013, these banks planned with traders associated with other firms in a way that clients and the markets could be taken advantage of.
Information pertaining to client activity was also shared. The FCA divulged that code names were used to identify the clients, which included “the 3 musketeers”, “the players”, “the A-Team”, “1 team, 1 dream”, and “a co-operative”.
The setting of a benchmark rate is not only beneficial to banks in making a profit, numerous individuals, as well as companies throughout the world depend on these rates in order to settle financial contracts. This dependency is based on faith in benchmark integrity, this according to Aitan Goelman, CFTC’s Director of Enforcement. The fact is that
The only way the market can work is if there is confidence in the process of setting benchmarks and knowing they are fair, not something manipulated and corrupted by some of the world’s largest banking institutions.
The investigation into the banks started in mid-2013 with evidence linked to traders at several large banks being analyzed. Investigators found that rates for leading world currencies had been manipulated, and then calculated and distributed by Thomson Reuters and WM Co.
Martin Wheatley, Chief Executive with the FCA told a committee of the parliament in a hearing this past February that evidence of foreign exchange wrongdoing was bad and that evidence showed bank traders manipulated the London Interbank Offered Rate (Libor), the benchmark used internationally to set rates on literally trillions of dollars connected with mortgages, loans, credit cards, and certain derivatives.
During the probe, numerous traders were placed on leave or terminated. Additional regulators and enforcement agencies plan to conduct investigations on JPMorgan Chase, claiming the New York-based bank was in discussions with the US Department of Justice over a criminal investigation of its foreign exchange dealings. In this case, spot trading, internal controls, and trading supervision are the primary focuses.
In recent announcements to shareholders, several banks in the US indicated costly settlements. On November 6, the Bank of America recorded a $400 million nondeductible charge and adjusted third quarter financial results to a net loss of $232 million or $0.4 per share.
The Bank of America said its decision was in response to advanced talks with specific US banking regulatory agencies in an effort to resolve issues pertaining to its foreign exchange business.
On October 30, Citigroup surprised its investors in a similar fashion by cutting third quarter earnings by $600 million. The bank stated this cut was to fund a higher allowance for legal expenses linked to investigations on the foreign exchange.
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