FCA fines five banks £1.1bn for forex rigging, Barclays probe continues

The Financial Conduct Authority (FCA) has issued its largest ever fine, slapping a £1.1bn penalty on five banks for rigging forex markets, with Barclays yet to settle as the regulator continues its investigation.

The UK regulator fined Citibank £225.6m, HSBC £216.4m, JPMorgan Chase £222.2m, Royal Bank of Scotland (RBS) £217m and UBS £233.8m.

In addition, the Commodity Futures Trading Commission (CFTC) in the US fined RBS £182m and HSBC £173m, with $310m each for Citibank and JPMorgan and $290m for UBS.

The UK regulator said the fine was for the banks "failing to control business practices in their G10 spot foreign exchange (FX) trading operations".

In relation to Barclays, the FCA added: "We will progress our investigation into that firm which will cover its G10 spot FX trading business and also wider FX business areas".

Legal action ahead?

Lawyers have warned that the banks could face legal claims from clients affected by the collusion, which could much larger than the regulatory fines.

“They were fiddling forex rates for almost six years in a market this big, so just look at the numbers – the damage has got to be in the billions,” Anthony Maton from law firm Hausfeld told City A.M. The potential claims had the potential to “dwarf the fines without a shadow of a doubt”, he added.

“Any person or entity that engaged in FX transactions directly or indirectly with one or more of the colluding banks between 2008 and 2013 may have a civil claim,” Maton added, according to the Guardian.

Simon Hart, banking litigation partner at lawyers RPC, said: “These fines and the evidence published today could trigger a flood of civil litigation from pension funds and other fund managers that lost money because of forex manipulation moving prices against them.”

Barclays hold off but could face much larger fine

Analyst Gary Greenwood at Shore Capital said he anticipated that Barclays will "eventually be hit with a larger penalty" than its UK peers, but noted that the bank has already set aside a relatively larger provision.

He said it appeared that RBS had provided fairly accurately for the fines, but that HSBC may have underprovided by around £151m unless it had set aside any additional provision prior to its recent third-quarter statement.

The settlements are the first in a slate of expected further ones on banks and regulators. Authorities have been investigating alleged wrongdoing in the currencies markets since last year.

The FCA worked closely with the CFTC in the US, which on Wednesday imposed total fines of over $1.4bn on the banks, while the Swiss regulator, FINMA, fined UBS 134m Swiss francs ($138m).

Goldman Sachs, Credit Suisse and Deutsche Bank were not parties to settlements on either side of the Atlantic, while Barclays said it "has considered a settlement" from the UK and US regulators on similar terms to those announced with the other five banks but rejected this in order to wait for a "more general coordinated settlement" with all regulators.

"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 in an emailed statement.

Barclays is seeking a co-ordinated settlement that includes other agencies such as the US Department of Justice, the Securities Exchange Commission (SEC), New York Department of Financial Services (DFS) as well as the Swiss regulator.

Explaining the reason for the fines, the CFTC said certain FX traders at the banks had been found to have colluded with traders at other banks in their attempts to manipulate the FX benchmark rates: "FX traders at the banks used private chat rooms to communicate and plan their attempts to manipulate the FX benchmark rates.

"In these chat rooms, FX traders at the banks disclosed confidential customer order information and trading positions, altered trading positions to accommodate the interests of the collective group, and agreed on trading strategies as part of an effort by the group to attempt to manipulate certain FX benchmark rates."

Martin Wheatley, chief executive of the FCA, said: “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."