Record fines imposed on banks for rigging forex market

By Nicole Miskelly | 22 May 2015

This week, Barclays, RBS, JPMorgan, Bank of America, UBS and Citigroup were fined $5.7bn (£3.6bn) by authorities in the US and UK for rigging foreign exchange markets.

The amount imposed on the six banks was the biggest-ever combined bank settlement in history, and along with the separate fines and settlements also announced on the day, took the total bill to over $6bn, a figure which has brought the overall bill for the forex scandal to over $10bn.

Barclays was fined a total of £1.5bn by five regulators, including a huge £284m by the UK Financial Conduct Authority (FCA). All banks except Bank of America were made to plead guilty to criminal charges and penalised by the US Department of Justice, and Swiss bank UBS was the only bank granted immunity because it was the first to report the manipulation of the foreign exchange markets, however, it was forced to admit to its part in other wrongdoings.

Regulators detailed how traders at the banks, who referred to themselves as “The Cartel”, worked together to rig benchmarks used by companies globally as a peg for foreign exchange markets and profited from the rigging at the expense of customers.

During the announcement of the fines, US attorney general, Loretta Lynch, said bank traders had shown “breathtaking flagrancy” by setting up the group to manipulate the market between 2007 and 2013.

“The penalty these banks will now pay is fitting considering the long-running and egregious nature of their anticompetitive conduct. It is commensurate with the pervasive harm done. And it should deter competitors in the future from chasing profits without regard to fairness, to the law, or to the public welfare,” Lynch said.

Since the news, many in the industry have been questioning how the manipulation was able to happen in the first place. Andrew Marshall, Partner at the financial services consultancy firm, Crossbridge, said the news questions whether the FCA and other conduct regimes are strong enough.

“The question many are asking themselves today is how such a gross manipulation of foreign exchange and interest rates could still happen in the current stringent regulatory environment. These actions will place into question whether the FCA and PRA Senior Management and Banking Conduct regimes are strong enough to enforce the UK’s future regulatory requirements,” Marshall said.

The news has also left people questioning how banks are going to make sure this type of scandal doesn’t happen again. Phil Beckett, partner at Proven Legal Technologies said that “the Forex scandal brings to life the real need for effective communications monitoring. Serious employee malpractice could have been captured by a more thorough analysis of communications in a proactive context.  Intelligent analysis of company data and communications – such as chat messages – on a regular basis can provide early warnings of issues such as those uncovered in the Forex scandal.”

Despite the severity of the situation, ACI President, Marshall Bailey said that banks now have the chance to learn from their mistakes and believes that technology can help them to do this. “There is now a real chance to learn and to ensure the right practices are applied and that regulators and market practitioners are working closely to establish a common set of standards and the best behaviour possible, based on an industry standard single code of conduct. Technology will be part of the solution to ensuring institutions and individuals learn the lessons and that there is no repeat of this behaviour which has damaged the reputation of the FX market.”

 

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