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 Royal Bank of Scotland <RBS.L> and JP Morgan <JPM.N> also face
penalties in a year-long probe that has put the largely unregulated
$5 trillion-a-day market on a tighter leash. The banks earned a 30
percent discount for settling early.
Dozens of dealers have been suspended or fired for sharing
confidential information about client orders and coordinating trades
to make money from a foreign exchange benchmark used by asset
managers and corporate treasurers to value their holdings in the
latest scandal to hit the financial industry.
They 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 Services Authority (FCA) and the U.S.
Commodity Futures Trading Commission (CFTC).
 UBS was 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, more than a year after U.S. and British
authorities started punishing banks for rigging the London interbank
offered rate or 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
and a year later a dealer at the bank questioned its information
sharing.
The bank said it regretted not responding more quickly to the
complaints. The other banks were similarly apologetic.
EXASPERATION
Reflecting political and official exasperation that banks failed to
stop the activity despite pledges to overhaul their culture and
internal controls, Britain's FCA levied a $1.7 billon fine, the
biggest in history of the City, the global hub for foreign exchange
trading.
It also launched a review of the spot FX industry that will require
firms to scrutinize trading and compliance systems 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 British bank did not join the group settlement because of
complications with the New York regulator, the Department of
Financial Services, people familiar with the matter said.
The FCA said its enforcement activities were focused on the five
banks plus Barclays, signaling that Deutsche Bank <DBKGn.DE> would
not face a fine from it.
Lenders could face 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 banks have been fined nearly $10 billion for rigging
market benchmarks used to price all sorts of contracts.
BANK OF ENGLAND
The Bank of England said in a separate review on Wednesday, that its
chief foreign exchange dealer, Martin Mallet, had failed to alert
his bosses that traders were sharing information.
The central bank has dismissed Mallet, who worked there for almost
30 years, but said he had not done anything illegal or improper.
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.
(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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