The Financial Conduct Authority (FCA) has imposed fines totalling GBP1.1 billion (USD1.7 billion) on five banks for failing to control business practices in their G10 spot foreign exchange (FX) trading operations.
The banks and their respective fines are: Citibank NA GBP225,575,000 (USD358 million), HSBC Bank Plc GBP216,363,000 (USD343 million), JPMorgan Chase Bank NA GBP222,166,000 (USD352 million), The Royal Bank of Scotland Plc GBP217,000,000 (USD344 million) and UBS AG GBP233,814,000 (USD371 million).
The FX market is one of the largest and most liquid markets in the world with a daily average turnover of USD5.3 trillion, 40 per cent of which takes place in London. The spot FX market is a wholesale financial market and spot FX benchmarks (also known as “fixes”) are used to establish the relative value of two currencies. Fixes are used by a wide range of financial and non-financial companies, for example to help value assets or manage currency risk.
The FCA’s investigation focused on the G10 currencies, which are the most widely-used and systemically important, and on the 4pm WM Reuters and 1:15pm European Central Bank fixes.
In addition to the fines announced, the FCA is conduction an on-going investigation into Barclays Bank Plc, covering its G10 spot FX trading business and also wider FX business areas.
The FCA is also launching 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.
According to the FCA, 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. 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 fines are the largest ever imposed by the FCA, or its predecessor the Financial Services Authority (FSA), and this is the first time the FCA has pursued a settlement with a group of banks in this way. The FCA has worked closely with other regulators in the UK, Europe and the US: today the Swiss regulator, FINMA, has disgorged CHF134 million (USD138 million) from UBS AG; and, in the US, the Commodity Futures Trading Commission (CFTC) has imposed a total financial penalty of over USD1.4 billion on the Banks and the Office of the Comptroller of the Currency (OCC) has imposed a total financial penalty of USD700 million on Citibank NA and JPMorgan Chase Bank NA.
Martin Wheatley, chief executive of the FCA, says: “The FCA does not tolerate conduct which imperils market integrity or the wider UK financial system. Today’s record fines mark the gravity of the failings we found and firms need to take responsibility for putting it right. 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. 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.”
Tracey McDermott, the FCA’s director of enforcement and financial crime, says: “Firms could have been in no doubt, especially after Libor, that failing to take steps to tackle the consequences of a free for all culture on their trading floors was unacceptable. This is not about having armies of compliance staff ticking boxes. It is about firms understanding, and managing, the risks their conduct might pose to markets. Where problems are identified we expect firms to deal with those quickly, decisively and effectively and to make sure they apply the lessons across their business. If they fail to do so they will continue to face significant regulatory and reputational costs.”
