EU Fines Five Banks for FX Manipulation

The European Union has formally fined five banks a total of EUR 1.07 billion for taking part in what the EU terms two “cartels” in the spot FX market, involving trades in 11 currencies.

Two settlement decisions have been announced, the first involves a group called the “Three Way Banana Split” which sees a total of EUR 811.2 million worth of fines imposed on Barclays, Citi, JP Morgan and Royal Bank of Scotland. The second fine is for the so-called “Essex Express” cartel and sees Barclays, RBS and Japan’s MUFG fined a total of EUR 257.6 million.

All five banks’ fines were reduced by 10% in exchange for their cooperation with the EU’s investigation, UBS was also part of the groups, however the EU waived the fine as the bank revealed the existence of the cartels to the EU. The fines were rumoured to be impending last week and come several years after the US and UK authorities fined leading banks for similar misconduct.

“Companies and people depend on banks to exchange money to carry out transactions in foreign countries,” says EU Commissioner Margrethe Vestager, head of competition policy. “Foreign exchange spot trading activities are one of the largest markets in the world, worth billions of euros every day. Today we have fined Barclays, The Royal Bank of Scotland, Citigroup, JPMorgan and MUFG Bank and these cartel decisions send a clear message that the Commission will not tolerate collusive behaviour in any sector of the financial markets. The behaviour of these banks undermined the integrity of the sector at the expense of the European economy and consumers.”

In what has become a familiar story, the European Commission’s investigation revealed that some individual traders exchanged sensitive information and trading plans, and occasionally coordinated their trading strategies through various online professional chatrooms.

The commercially sensitive information exchanged in these chatrooms related to outstanding customers’ orders; bid-ask spreads applicable to specific transactions; their open risk positions; and  other details of current or planned trading activities.

“The information exchanges, following the tacit understanding reached by the participating traders, enabled them to make informed market decisions on whether to sell or buy the currencies they had in their portfolios and when,” the EU says. “Occasionally, these information exchanges also allowed the traders to identify opportunities for coordination, for example through a practice called “standing down” (whereby some traders would temporarily refrain from trading activity to avoid interfering with another trader within the chatroom).

“Most of the traders participating in the chatrooms knew each other on a personal basis – for example, one chatroom was called Essex Express ‘n the Jimmy because all the traders but “James” lived in Essex and met on a train to London,” it continues. “Some of the traders created the chatrooms and then invited one another to join, based on their trading activities and personal affinities, creating closed circles of trust.”

Again in a familiar pattern the traders typically logged in to multilateral chatrooms on Bloomberg terminals for the whole working day, and had extensive conversations about a variety of subjects, including recurring updates on their trading activities.

Citi was the hardest hit by the EU, receiving a fine, after 10% reduction, of EUR 310.776 million for its traders’ participation in one chatroom, while Barclays was hit with fines totalling EUR 249.214 million and RBS also received fines amounting to EUR 210.324 million fine for participating in both chatrooms. JP Morgan was fined EUR 228.815 million for its activities in one chat room and MUFG, thanks to activities by traders at Bank of Tokyo-Mitsubishi, which is now part of that banking group, was fined EUR 69.75 million.

The fines are expected to be the last set down by global regulators, however the banks still face the prospect of civil actions brought by customers, one major case is already being brought in the EU.

Colin Lambert

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