Banks fined $4.3B in foreign exchange probe

Jane Onyanga-Omara and Kevin McCoy | USA TODAY

Six big banks agreed Wednesday to pay $4.3 billion to settle civil allegations from regulators in the U.S., Great Britain and Switzerland that some of their traders attempted to manipulate the world's $5.3-trillion-a-day foreign exchange currency-trading market to boost trading profits.

Traders from JPMorgan Chase (JPM), Citigroup (C), HSBC (HSBC), Royal Bank of Scotland (RBS), UBS (UBS) and Bank of America (BAC) shared information about the foreign exchange trading activities of their firms' clients and colluded on strategies aimed at manipulating benchmark exchange rates for pairs of leading world currencies such as the British pound and U.S. dollar and the U.S. dollar and Japanese yen, regulators said.

The traders formed tight-knit groups to share information about client activity and used code names to identify clients, regulators said. The traders groups were nicknamed "the players," "the 3 musketeers," "1 team, 1 dream," "a co-operative" and "the A-team."

Excerpts of chat room exchanges released by investigators show the traders spoke in shorthand as they colluded to push foreign exchange rates up or down at the daily 4 p.m. London time "fix," one of the most widely referenced benchmarks for major world currencies.

Sounding more like a mobster rather than a bank employee in one exchange, a Citibank trader issued what regulators termed a "presumably facetious" warning to a trader who sought to join one of the groups: "Mess this up and sleep with one eye open at night."

"If the manipulation effects had succeeded, there very well could have been distortion effects on relative prices for imports and exports related to the various currencies," said Robert Hockett, a Cornell Law School professor who specializes in monetary and financial law.

The fines were announced by two U.S. regulators — the Commodity Futures Trading Commission and the Office of the Comptroller of the Currency — Britain's Financial Conduct Authority, and Swiss financial regulator FINMA.

JPMorgan and Citi were hit with the heaviest penalties — more than $1 billion each in all. UBS' fines total $800 million, while RBS will pay $634 million and HSBC will pay $618 million. Bank of America, which was only fined by the OCC on Wednesday, was penalized $250 million.

Barclays also had been expected to be among the banks penalized in the latest major scandal involving global benchmarks to rock the financial world. But the London-based bank withdrew from settlement talks. Barclays issued a statement saying it considered a deal on "closely similar terms" to the announcements but ultimately decided to seek "a more general coordinated settlement."

The announcements signal the end of the first phase of continuing investigations on both sides of the Atlantic. The U.S. Department of Justice is pursuing a separate criminal investigation of suspected foreign-exchange trading wrongdoing and is in the early stages of examining individuals' conduct. The New York's Department of Financial Services is also investigating.

JPMorgan confirmed in a Nov. 3 quarterly filing that it was in discussions with Department of Justice investigators regarding a criminal investigation of its foreign exchange business.

Separately, FINMA recently warned present and former employees of UBS they could face individual charges, The Wall Street Journal reported. Several dozen traders were terminated or placed on leave by major banks during the regulatory probes.

The FCA said it would continue its investigation into Barclays. The British regulator added that it is launching an industry-wide remediation program to ensure companies address the root causes of the foreign exchange wrongdoing and improve oversight standards.

According to the FCA, bank traders shared confidential client information and attempted to manipulate spot foreign exchange rates for 10 major currencies. Between January 2008 and October 2013, they colluded with traders at other firms "in a way that could disadvantage those clients and the market," the FCA said.

Aitan Goelman, the CFTC's director of enforcement, said: "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," said Goelman. "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."

Comptroller of the Currency Thomas Curry said investigators found shortcomings in banks' controls over foreign exchange trading. expect national banks "to have controls in place that are sufficiently robust to ensure that employees will follow the law and adhere to the highest standards of conduct."

Citigroup said it was continuing to cooperate with investigators and has "already made changes to our systems, controls and monitoring processes to better guard against improper behavior."

Royal Bank of Scotland CEO Ross McEwan said the bank had maintained "an open and honest dialogue" with regulators and had also undertaken remediation efforts.

"Today's resolutions are an important step in our transformation process and toward closing this industry-wide matter," said UBS CEO Sergio Ermotti, who added that the bank also cooperated with investigators.

HSBC said it "does not tolerate improper conduct and will take whatever action is appropriate."

Calling the trader conduct uncovered by investigators "unacceptable," JPMorgan said it had improved the bank's systems and controls and "spent a lot of time reinforcing the high standards of conduct expected of our people."

Bank of America said it had no comment beyond last week's disclosure that it had taken a $400 million third-quarter charge to boost its legal reserves for foreign exchange settlements.

The regulatory probes of the largely unregulated foreign currency market began in mid-2013. Investigators amassed evidence that traders at several major banks made regular and repeated efforts to manipulate the rates for some of the 160 world currencies that are calculated and distributed by a joint venture of the WM Co. and Thomson Reuters.

Settlement orders filed by the regulators showed that traders focused their manipulation efforts in part on the World Markets/Reuters Closing spot rates, set each day at 4 p.m. London time. Additionally, the FCA said it found evidence of attempts to trigger clients' stop loss orders for the benefit of banks, and to the potential detriment of clients and other market participants.

FCA Chief Executive Officer Martin Wheatley told a parliamentary committee hearing in February that evidence of foreign exchange wrongdoing was "every bit as bad" as findings that bank traders had manipulated the London Interbank Offered Rate, or Libor, the international benchmark used to set rates on trillions of dollars in loans, mortgages, credit cards and some derivatives.

Like the foreign exchange investigations, the Libor probes resulted in billions of dollars in bank settlements. Several traders have also been charged individually.

The CFTC noted that evidence showed some of the attempted foreign exchange manipulation occurred while the banks were under investigation for suspected Libor-related wrongdoing. That finding prompted Robert Weissman, president of watchdog group Public Citizen, to call for criminal prosecutions.

"For too long, U.S. law enforcement agencies have been far too soft on Wall Street lawbreakers," said Weissman.



