UK, US and Swiss authorities have punished banks over rigging the foreign exchange market, adding another chapter of offences that have already seen firms hit with heavy fines.

(The item has been updated to include industry reaction, Bank of England statement on dealer's dismissal.)

The UK’s financial regulator has slapped fines totalling £1.115 billion ($1.7 billion) on five banks for lax controls on their G10 spot foreign exchange trading operations, while US and Swiss regulators have also punished banks, ending a probe into forex benchmark-rigging that is likely to put more pressure on firms to tighten compliance.

The Financial Services Authority imposed the fines on the following banks: Citibank NA £225,575,000; HSBC, £216,363,000; JP Morgan, £222,166,000; Royal Bank of Scotland, £217,000,000, and UBS £233,814,000. There had been speculation in recent days that an announcement was imminent.

Separately, the Bank of England has fired its chief currency dealer, Martin Mallett, making the saga one of the most serious financial scandals to have hit the City in years.

US and Swiss regulators also investigating the issue in the world’s $5.3 trillion-a-day forex market have also taken action. FINMA, the Swiss regulator, has disgorged SFr134 million ($138 million) from UBS; and, in the US, the Commodity Futures Trading Commission has imposed a total financial penalty of over $1.4 billion on the banks, the FCA said in its statement today.

The FCA said it is still investigating Barclays over the forex manipulation issue but made no further comments about that UK-listed bank. That bank has already been one of the firms punished by regulators for manipulating the interbank interest rate benchmark market.

Barclays said it has "engaged constructively with its regulators" to consider whether to join today's settlement, but after talks, it said "we have concluded that it is in the interests of the company to seek a more general coordinated settlement". "We will continue to engage with these authorities, including the FCA and CFTC, with the objective of bringing this to resolution in due course," it said.

It had been claimed that bank dealers had shared information through instant messaging and other channels and used client orders to shift currency benchmark rates, thereby profiting themselves and their institutions. Benchmark forex rates are designed as references for a range of financial products, as is the case with interest rate benchmarks that are used for products such as mortgages and savings rates.

“This is the largest fine ever issued by the FCA. It shows that the regulators are encouraging institutions to conduct market risk assessments and that market conduct is at the forefront of the regulatory agenda,” Monique Melis, partner at Kinetic Partners, said of the regulators’ actions.

“This example highlights the sophistication of the regulators, not least because they have begun to look into complex areas by implementing better technology and deploying higher calibre experts. This case is the most significant collaboration between the regulators and follows a long line of market conduct scandals. Firms must take a global approach to this as they are under more global scrutiny than ever before and whilst no one has been criminally prosecuted yet, many firms have been reprimanded,” she said.

Bank of England

The BoE told this publication in an emailed statement that its chief currency dealer, had been dismissed. “Following a disciplinary process unrelated to Lord Grabiner’s investigation, the Bank’s Chief FX Dealer, who was suspended in March, was dismissed on 11 November for serious misconduct relating to a failure to adhere to the Bank’s internal policies. “The individual’s dismissal was not at all related to the allegations investigated by Lord Grabiner, but as a result of information that came to light during the course of the Bank’s initial internal review into allegations relating to the FX market and Bank staff. This information related to the Bank’s internal policies, not to FX.” (Lord Grabiner, a senior legal figure in the UK, had conducted an enquiry into the role of BoE officials in relation to conduct issues in the forex market.)

FCA
In its statement today, the FCA said: “In addition to taking enforcement action against and investigating the six firms where we found the worst misconduct, we are launching an industry-wide remediation programme to ensure firms address the root causes of these failings and drive up standards across the market. We will require senior management at firms to take responsibility for delivering the necessary changes and attest that this work has been completed.”

The FCA said that between 1 January 2008 and 15 October 2013, ineffective controls at the banks allowed G10 spot FX traders to abuse the system.

“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 FCA continued.

The regulator said the fines are the largest it has ever imposed, and is the first time it has pursued such a settlement in this way with a group of banks.

The offences are particularly concerning, the FCA said, because the offences came to light during a period when firms were already supposedly tightening up processes to stop a repeat of interest rate rigging.

The issue has already caused upheavals. At Barclays, for example, the Libor scandal led to the resignation of high-profile chief executive Robert Diamond two years ago. The scandals have also seen a surge in the amount of money spent on compliance functions and jobs in that area.

“Since Libor general improvements have been made across the financial services industry, and some remedial action was taken by the Banks fined today. However, despite our well-publicised action in relation to Libor and the systemic importance of the G10 spot market, the banks failed to take adequate action to address the underlying root causes of the failings in that business,” the FCA continued.

“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,” Martin Wheatley, chief executive of the FCA, said in a statement.

UBS
Switzerland's largest bank said in a statement it has reached resolutions with the Swiss Financial Market Supervisory Authority, the US Commodity Futures Trading Commission and the UK Financial Conduct Authority over the forex-rigging saga.

"Today's resolutions are an important step in our transformation process and towards closing this industry-wide matter for UBS. We continue to cooperate with related ongoing investigations," Sergio Ermotti, chief executive at UBS, said in a statement today.

UBS confirmed that FINMA has ordered it to pay SFr134 million in confiscation of costs avoided and profits. In addition, UBS said it has agreed to pay $290 million fines to the CFTC in connection with settlements agreed to by a number of banks. UBS also agreed a £234 million fine with the FCA in connection with settlements agreed to by a number of banks.

"UBS provisioned fully for these charges in the third quarter of 2014," it said.

Other banks, such as HSBC, have already disclosed provisions they are making in expectation of a settlement over the issue.

“The banks involved have announced new measures that will make it more difficult for traders to take advantage of the unregulated currency exchange for their own benefit. Frankly, this is a long overdue update to the industry - transparency should be absolutely integral to foreign exchange trading,” Philippe Gelis, chief executive and founder of Kantox, a peer-to-peer forex platform.

“The only way to achieve this is to make transactions based on live mid-market rates, in real time. The foreign exchange market would benefit greatly from decentralisation away from the dominance of a select few banks, in preference of company-to-company currency exchange. As long as this ‘power circle’ remains, there will always be hidden fees, small print, and the risk of collusion and manipulation,” Gelis said.