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 UBS, HSBC and Citigroup, Royal Bank of Scotland and JP Morgan all
face penalties resulting from the probe that has also put the
largely unregulated $5 trillion-a-day market on a tighter leash. One
regulator gave banks a 30 percent discount for settling early.
In the latest scandal to hit the financial services industry,
dealers shared confidential information about client orders and
coordinated trades to make money from a foreign exchange benchmark
used by asset managers and corporate treasurers to value their
holdings. Dozens of traders have been fired or suspended.
Dealers used code names to identify clients without naming them and
created online chatrooms with pseudonyms such as "the players", “the
3 musketeers” and “1 team, 1 dream” in which to swap information.
Those not involved were belittled.
Switzerland's UBS swallowed the biggest penalty paying $661 million
to Britain's Financial Conduct Authority (FCA) and the U.S.
Commodity Futures Trading Commission (CFTC).
UBS was also ordered by Swiss regulator FINMA, which also said it
had found serious misconduct in precious metals trading, to hand
over 134 million Swiss francs after failing to investigate a 2010
whistleblower's report.
The misconduct at the banks stretched back to the previous decade
and up until October 2013, over a year after U.S. and British
authorities started punishing banks for rigging the London interbank
offered rate (Libor), an interest rate benchmark.
RBS, which is 80 percent owned by the British government, received
client complaints about foreign exchange trading as far back as
2010. The bank said it regretted not responding more quickly to the
complaints.
The other banks were similarly apologetic. Their shares were under
pressure in European trading.
EXASPERATION
Reflecting exasperation that banks failed to stop the activity
despite pledges to overhaul their culture and controls, the FCA
levied a $1.7 billon fine, the biggest in the history of the City,
but gave a 30 percent discount for early settlement.
The FCA also launched a review of the spot FX industry that will
require firms to scrutinise trading and compliance and may involve
looking at other markets such as derivatives and precious metals.
"Today’s record fines mark the gravity of the failings we found and
firms need to take responsibility for putting it right," the FCA's
Chief Executive Martin Wheatley said.
"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."
Barclays <BARC.L>, which had been in settlement talks with both the
FCA and the CFTC, made a "commercial decision" to pull out of the
discussions, the FCA said. Its investigation of the banks continues.
[to top of second column] |
The FCA said its enforcement activities were focused on the five
banks plus Barclays, signalling that Deutsche Bank would not
face a fine from it.
Lenders are expecting more penalties, however, with the U.S.
Department of Justice and New York's Department of Financial
Services still investigating the scandal. Britain's Serious Fraud
Office is also investigating and there is the threat of civil
litigation from disgruntled customers.
The CFTC, which regulates swaps and futures in the United States,
fined the five banks more than $1.4 billion as part of Wednesday's
group settlement.
Since 2012 financial firms have been fined nearly $10 billion for
rigging market benchmarks.
BANK OF ENGLAND
The Bank of England said in a separate review on Wednesday, that its
chief foreign exchange dealer, Martin Mallet, had not alerted his
bosses that traders were sharing information.
The central bank, whose boss Mark Carney is leading global
regulatory efforts to reform financial benchmarks, has dismissed
Mallet but said he had not done anything illegal or improper.
It also said it had scrapped regular meetings with London-based
chief currency dealers, a sign the BOE wants to put a distance
between it and the banks after the scandal.
The investigation has provoked major changes to the foreign exchange
market with a clamp down on chatrooms, the suspension or firing of
more than 30 traders, an increase in automated trading and new
regulatory changes to FX benchmarks which world leaders are expected
to sign at the G20 summit in Brisbane this weekend.
FINMA has also instructed UBS to limit bonuses for traders of
foreign exchange and precious metals to 200 percent of their base
salary for two years.
(Refiles to fix name of FCA in paragraph 5)
(Additional reporting by Steve Slater, Huw Jones, Jamie McGeever,
Clare Hutchison and Matt Scuffham in London and Katharina Bart in
Zurich; Writing by Carmel Crimmins, Editing by Alexander Smith and
Anna Willard)
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