Banks fined £2 billion over FX scandal
12 November 2014 London
Image: Shutterstock
Five international banks have been fined a total of £2 billion by the UK Financial Conduct Authority (FCA) and the US Commodity Futures Trading Commission (CFTC) over attempts to manipulate the foreign exchange market.
The Royal Bank of Scotland, HSBC, UBS, J.P. Morgan and Citigroup were collectively fined £1.1 billion by the FCA and $1.4 billion by the CFTC.
The FCA is continuing its investigation in to the role of Barclays in the scandal.
Banks formed groups of traders to place orders during the period of time that the daily rate was established, creating profit for their firms and potentially affecting the benchmark calculations that could in turn distort the daily rate.
The groups of traders conversed through online chat room and identified themselves with codenames such as ‘the players’, ‘the 3 musketeers’ and ‘the A-team’.
An FCA investigation found that banks did not exercise effective control over their G10 spot FX trading businesses between 1 January 2008 and 15 October 2013, and acted without “proper regard for the interests of their clients, other market participants or the wider UK financial system”.
President of the ACI Financial Markets Association, Marshall Bailey, has responded to the decision, saying that lessons must be learnt for the scandal, and that regulations must be tightened to prevent unethical behaviour in the future.
“Ultimately, it came down to the behaviour of individual market participants, and the ability of their supervisors to enforce the standards required through oversight and governance,” he said.
“We must work with international regulators to strengthen and implement these internal controls and ensure they are applied across all institutions globally.”
He added, however, that the market has a collective responsibility to work with policymakers to create a fair system, and that the industry should not leap to over- zealous changes.
"Unfortunately, the actions of this relatively small unrepresentative minority has damaged the reputation of the market in the eyes of the public, but this should not be seen to reflect the broader health of the FX industry, nor should it trigger wider structural reforms,” he said.
“At the heart of this should be a renewed focus on instilling ethical conduct and individual responsibility across all institutions and regions globally. Market participants also need to be uniformly educated about what is and isn’t acceptable, and be aware that they, as individuals, are responsible for their actions.”
Director of enforcement and financial crime at the FCA, Tracey McDermott, said: “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.”
The FCA is also launching an industry-wide remediation programme encouraging firms to address the root causes of the failings in question, and to ensure that senior management take responsibility for their traders’ conduct.
The Royal Bank of Scotland, HSBC, UBS, J.P. Morgan and Citigroup were collectively fined £1.1 billion by the FCA and $1.4 billion by the CFTC.
The FCA is continuing its investigation in to the role of Barclays in the scandal.
Banks formed groups of traders to place orders during the period of time that the daily rate was established, creating profit for their firms and potentially affecting the benchmark calculations that could in turn distort the daily rate.
The groups of traders conversed through online chat room and identified themselves with codenames such as ‘the players’, ‘the 3 musketeers’ and ‘the A-team’.
An FCA investigation found that banks did not exercise effective control over their G10 spot FX trading businesses between 1 January 2008 and 15 October 2013, and acted without “proper regard for the interests of their clients, other market participants or the wider UK financial system”.
President of the ACI Financial Markets Association, Marshall Bailey, has responded to the decision, saying that lessons must be learnt for the scandal, and that regulations must be tightened to prevent unethical behaviour in the future.
“Ultimately, it came down to the behaviour of individual market participants, and the ability of their supervisors to enforce the standards required through oversight and governance,” he said.
“We must work with international regulators to strengthen and implement these internal controls and ensure they are applied across all institutions globally.”
He added, however, that the market has a collective responsibility to work with policymakers to create a fair system, and that the industry should not leap to over- zealous changes.
"Unfortunately, the actions of this relatively small unrepresentative minority has damaged the reputation of the market in the eyes of the public, but this should not be seen to reflect the broader health of the FX industry, nor should it trigger wider structural reforms,” he said.
“At the heart of this should be a renewed focus on instilling ethical conduct and individual responsibility across all institutions and regions globally. Market participants also need to be uniformly educated about what is and isn’t acceptable, and be aware that they, as individuals, are responsible for their actions.”
Director of enforcement and financial crime at the FCA, Tracey McDermott, said: “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.”
The FCA is also launching an industry-wide remediation programme encouraging firms to address the root causes of the failings in question, and to ensure that senior management take responsibility for their traders’ conduct.
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