Compliance
Regulators Hit Six Of The World's Biggest Banks Over Forex Offences

Six of the biggest players in global banking have been hit with fines relating to offences over foreign exchange and other markets.
(The item has been updated with further details from yesterday.)
Six of the world’s biggest banks, Barclays, Citigroup, Royal
Bank of Scotland, Bank of America, UBS and JP Morgan, have been
hit with heavy fines for breaches of rules around the $5.3
trillion (daily turnover) global forex market, putting the need
for compliance once again in the spotlight. In total, the
penalties on the banks stand at $5.6 billion.
Barclays was hit with
a with a fine totalling £1.534 billion ($2.38 billion) from US
and UK regulators for failing to control practices in its foreign
exchange operations.
UBS entered a resolution
agreement with US authorities over their investigation into
alleged rigging of the foreign exchange markets, avoiding
criminal prosecution and obtaining conditional immunity from
prosecution, it said yesterday. The bank admitted a charge of
wire fraud and is to pay a $203 million fine in connection to
LIBOR, the inter-bank interest rate. It has also agreed to pay a
$342 million penalty relating to its forex business.
In the case of JP
Morgan, the Wall Street-listed bank said it will plead guilty
to violation of US anti-trust law and pay a fine of $550 million.
The agreement was with the US Department of Justice and Federal
Reserve.
Royal
Bank of Scotland also reached settlements with the Federal
Reserve and DoJ over foreign exchange violations.
RBS agreed to enter a guilty plea pursuant to a plea agreement
with the DoJ admitting that it knowingly, through one of its
euro/US dollar currency traders, joined and participated in a
conspiracy to eliminate competition in the purchase and sale of
the euro/US dollar currency pair exchanged in the FX spot market
in the United States and elsewhere, in violation of the Sherman
Antitrust Act.
The charged conspiracy continued from as early as December 2007
to at least January 2013. RBS is charged with participating in
the conspiracy from as early as December 2007 until at least
April 2010. The plea agreement is subject to approval of the
federal court in Connecticut that is presiding over the matter.
RBS will pay penalties of $395 million to the DoJ and $274 million to the Federal Reserve to resolve the investigations. As previously disclosed, RBS remains in discussions with governmental and regulatory authorities in other jurisdictions in relation to conduct within its FX business.
In addition, RBS and RBS Securities Inc. have reached an agreement to settle the consolidated antitrust class action brought on behalf of plaintiffs who entered into FX transactions with RBS or other defendant banks. The agreement is subject to execution of a final settlement agreement and approval of the federal court in New York that is presiding over the matter.
Citigroup announced
it has entered into settlements with the United States Department
of Justice (DOJ) and the Board of Governors of the Federal
Reserve System (Fed) to resolve investigations into Citi’s
foreign exchange business. The settlement with the DOJ includes a
guilty plea by Citicorp, a subsidiary of Citigroup, to a
violation of the Sherman Antitrust Act and fine of $925 million.
The settlement with the Fed includes the entry of a cease and
desist order and a civil money penalty of $342 million. Citi also
announced that it has reached a separate agreement to settle
related private U.S. class action claims for a payment of $394
million, subject to court approval.
Citi expects to maintain its licenses and does not expect a
material impact on its operations or ability to serve its
clients. The payments required by each of the settlements Citi
announced today are covered by existing legal reserves and will
not require a charge to earnings in the second quarter of 2015,
it said.
Bank of America was fined $205 million. BoA avoided a guilty plea over the actions of its traders in chatrooms.
Five out of the six banks (excluding Bank of America) pleaded guilty to felony charges, the US Department of Justice said.
“Today’s historic resolutions are the latest in our ongoing
efforts to investigate and prosecute financial crimes, and they
serve as a stark reminder that this Department of Justice intends
to vigorously prosecute all those who tilt the economic system in
their favor; who subvert our marketplaces; and who enrich
themselves at the expense of American consumers,” Loretta Lynch,
Attorney General, said in a statement yesterday.
“The charged conspiracy fixed the US dollar – euro exchange rate,
affecting currencies that are at the heart of international
commerce and undermining the integrity and the competitiveness of
foreign currency exchange markets which account for hundreds of
billions of dollars worth of transactions every day,” said
Assistant Attorney General Bill Baer. “The seriousness of
the crime warrants the parent-level guilty pleas by Citicorp,
Barclays, JPMorgan and RBS," Baer said.
Record in UK
The UK’s Financial
Conduct Authority fined Barclays £284.432 million ($442.11
million), a record for such an offence, the FCA said.
"The misconduct at the core of these investigations is wholly
incompatible with Barclays' purpose and values and we deeply
regret that it occurred. This demonstrates again the
importance of our continuing work to build a values-based culture
and strengthen our control environment. We remain completely
committed to that effort,” Antony Jenkins, chief executive, said
in a statement.
The Barclays offence adds to other punishments meted out to the
bank, and its peers, for failings and regulatory breaches in
recent years. The UK-listed bank saw the resignation of
high-profile Bob Diamond in 2012 after the bank was fined for its
involvement – with other firms – in rigging interbank interest
rates such as LIBOR.
Benchmark rates for foreign exchange and other instruments are
particularly sensitive public issues because they underpin
financial products such as mortgages and savings. The
rate-rigging saga and other scandals have led to calls for, and
spending on, compliance efforts.
“Barclays’ failure adequately to control its FX business is
particularly serious in light of its potential impact on the
systemically important spot FX market. The failings occurred
throughout Barclays’ London voice trading FX business, extending
beyond G10 spot FX trading into EM spot FX trading, options and
sales, undermining confidence in the UK financial system and
putting its integrity at risk,” the FCA said.
“This is another example of a firm allowing unacceptable
practices to flourish on the trading floor. Instead of addressing
the obvious risks associated with its business Barclays allowed a
culture to develop which put the firm’s interests ahead of those
of its clients and which undermined the reputation and integrity
of the UK financial system. Firms should scrutinise their
own systems and cultures to ensure that they make good on their
promises to deliver change,” Georgina Philippou, the FCA’s acting
director of enforcement and market oversight, said.
Barclays settled at stage two of the FCA’s investigation,
qualifying for a 20 per cent discount – without this, the FCA
would have imposed a financial penalty of £355.540 million, the
FCA said.
UBS
The Swiss firm said it has approved entering into resolutions
with the US Department of Justice, the US Federal Reserve System
and the Connecticut Department of Banking in their investigations
of the global foreign exchange markets.
This move follows UBS’s resolutions last November with the Swiss
Financial Market Supervisory Authority, the UK Financial Conduct
Authority and the US Commodity Futures Trading Commission.
“As a result of today's resolutions, UBS has not been criminally
charged for FX conduct. The DoJ will also not file any charges
concerning its investigations into the firm's V10 FX-related
structured products and its precious metals business,” it said in
a statement.
"UBS has pleaded guilty to a count of wire fraud for conduct in the LIBOR matter, agreed to pay $203 million and accept a three-year term of probation,” it continued. The guilty plea for LIBOR by UBS relates to the same conduct that was the basis of the plea by the firm's Japanese subsidiary when the firm resolved its LIBOR issues in 2012. The Fed and the Connecticut Department of Banking jointly issued a cease and desist order finding that UBS engaged in unsafe and unsound business practices relating to its foreign exchange business. UBS will pay a penalty of $342 million to the Fed and has agreed to undertake a series of remedial measures, the bank said.
JP Morgan
Under the resolution with the Fed, the bank will pay a fine of
$342 million and has agreed to the entry of a consent order. JP
Morgan said it has previously reserved for these settlements.
These settlements add to agreements announced in November 2014
with the UK Financial Conduct Authority, the US Commodity Futures
Trading Commission and the US Office of the Comptroller of the
Currency relating to the FX trading business.
“Today's resolutions, along with similar government settlements
with other major banks announced today, call for certain remedial
actions that are consistent with those required under the firm's
prior settlements relating to FX,” JP Morgan said.
“The firm has already commenced significant efforts in this
regard to help ensure it is operating according to the high
standards that the company and its regulators demand. With
today's agreements and the remediation and other efforts it is
making, the company is able to continue to serve its clients and
does not anticipate future material constraints on its business
activities. The DOJ agreement will be submitted to the court for
its consideration. The Fed Agreement is effective immediately,”
it said.
The conduct leading to the antitrust charge is principally
attributable to a single trader (who has since been dismissed)
and his coordination with traders at other firms, the bank said.