The Federal Reserve Board has fined HSBC just over $175 million for the firm’s “unsafe and unsound practices” in its FX trading business.
The Fed says it levied the fine for deficiencies in HSBC’s oversight of, and internal controls over, FX. It adds that the firm failed to detect and address its traders misusing confidential customer information, as well as using electronic chatrooms to communicate with competitors about their trading positions.
The Board’s order requires HSBC to improve its controls and compliance risk management concerning the firm’s FX trading.
The order says that HSBC fully cooperated with the Fed and has made and continues to make progress in implementing enhancements to its firm-wide compliance systems and controls that are designed to address deficiencies in its FX business.
The order says that the practices included two of its senior traders, including the bank’s global head of FX cash trading, “misusing confidential inside information to conduct FX trades in a manner that benefitted them and their trading desk to the detriment of [HSBC’s] corporate client, which resulted in the traders’ indictment by a federal grand jury on multiple counts of wire fraud and conspiracy to commit wire fraud.”
The Fed further says HSBC traders engaged in “possible” agreements with traders of other institutions to coordinate FX trading in a manner designed to influence benchmark fixes and market prices generally; attempted to influence contributions to a submission-based FX benchmark in a certain emerging market currency in order to possibly benefit HSBC; employed trading strategies that raised potential conflicts of interest; and included disclosures to traders of other institutions of confidential information of HSBC.
The fine follows one levied by the UK’s Financial Conduct Authority in November 2014. The FCA fined HSBC more than GBP 216 million for similar breaches to those listed in the Fed’s order.
Although the order and fine will bring more negative publicity to the FX industry, the Fed’s action is, in reality, a boiler plate response to misconduct that was highlighted, and largely dealt with, some years ago. In April, the Fed fined Deutsche Bank just under $137 million and used the exact same language of “unsafe and unsound practices”.