Citi fined $79M by UK regulators for trading control failures

Citigroup Inc. has been slapped with a hefty $79 million fine by British regulators, marking one of the largest penalties ever issued in the UK for breaches in trading systems. Citi’s fine was imposed due to a series of control failures in the investment bank’s trading systems, which led to a series of trading incidents, including a notable “fat-finger” error. The incident, which occurred in May 2022, resulted in a sudden plunge in European stocks, attributed to lapses in Citigroup’s trading controls.

Both the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), the key market watchdogs, conducted investigations leading to the fine. The probe uncovered a series of failings within Citigroup’s trading operations spanning from April 2018 to May 2022.

The $1.4B blunder

The most notable incident occurred on May 2, 2022, when an experienced Citi trader made a $444 billion trading input error, which was meant to be a mere $58 million transaction.  This triggered sell orders worth $1.4 billion mistakenly executed on European exchanges, a blunder that affected Citi’s operations but also impacted the market.

The immediate cause was termed as a “fat-finger” error by a trader, but underlying control deficiencies within Citigroup‘s electronic trading system exacerbated the situation.

The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) found that deficiencies in Citi’s trading controls, such as the absence of certain preventative hard blocks and the inappropriate calibration of other controls, contributed to this incident.

Steve Smart, joint executive director of enforcement and market oversight at the FCA, commented, “The FCA expects firms engaged in trading activities, including those using algorithmic trading, to have effective systems and controls in place to stop errors like this occurring.

“These failings led to over a billion pounds of erroneous orders being executed and risked creating a disorderly market. We expect firms to look at their own controls and ensure that they are appropriate given the speed and complexity of financial markets.”

Citigroup’s response

In response to the fines and the highlighted issues, Citi expressed its commitment to rectifying the situation. A spokesperson for the bank stated, “We are pleased to resolve this matter from more than two years ago, which arose from an individual error that was identified and corrected within minutes. We immediately took steps to strengthen our systems and controls, and remain committed to ensuring full regulatory compliance.”

The fine imposed by the PRA on Citigroup, amounting to £33.9 million, reflects the severity of the trading systems and controls failings, with a 30% reduction agreed upon after Citigroup’s commitment to resolving the issues. Additionally, the FCA levied a fine of £27.8 million on the bank for similar infractions.

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