Read time: 3 min

Major Banks Hit With Over $5.8 Billion in FX Probe Fines

Six major banks have been required to pay over $5.8 billion in fines with five pleading guilty to FX market abuse, authorities announced today (20 May).

Citi, JP Morgan, Barclays and the Royal Bank of Scotland (RBS) have all pleaded guilty to their role in colluding to manipulate the FX spot market and have agreed to pay criminal fines totaling more than $2.5 billion to the US Department of Justice (DoJ).

Meanwhile, earlier today Profit & Loss reported that UBS has also agreed to pay a criminal penalty of $203 million to the DoJ for breaching its non-prosecution agreement relating to criminal market practices around FX and Libor benchmarks.

The US Federal Reserve has imposed fines totaling more than $1.8 billion against six banks for “unsafe and unsound practices in the foreign exchange markets”. UBS, Barclays, Citi and JP Morgan have agreed to pay $342 million each, RBS has been fined $274 million and Bank of America will have to pay $205 million.

Barclays, in part because it pulled out of an earlier settlement agreement, has been the hardest hit in total today, having to pay a total of $2.4 billion in fines.

In addition to the $710 million and $342 million fines from the DoJ and Federal Reserve respectively, the bank also has to pay $485 million to the New York State Department of Financial Services (NYDFS), $400 million to the Commodity Futures Trading Commission (CFTC) and £284 million  ($441 million) to the UK’s Financial Conduct Authority (FCA).

“Put simply, Barclays employees helped rig the foreign exchange market. They engaged in a brazen ‘heads I win, tails you lose’ scheme to rip off their clients. While today's action concerns misconduct in spot trading, there is additional work ahead. The Department's investigation of electronic foreign exchange trading – which makes up the vast majority of transactions in this market – will continue,” says Benjamin Lawsky, superintendent of the NYDFS.

Barclays is also terminating the contracts of eight additional bank employees who “engaged in misconduct for New York Banking Law violations in connection with its scheme to manipulate spot trading in the foreign exchange (FX) market,” says the NYDFS.

Speaking at a press conference in Washington, US Attorney General, Loretta Lynch, revealed that in the DoJ settlement Citi alone had been forced to pay $925 million, the largest ever fine for a violation of the Sherman Act.

“These figures appropriately reflect the conspiracies, the systemic reach and significant impact of these banks,” says Lynch.

Lynch revealed that UBS had breached its previous agreements through the fraudulent behaviour of its FX sales practices and its failure to take adequate action to prevent further unlawful behaviour.

“UBS promised not to commit additional crimes, but it did. This represents the first tie in recent history that the Department of Justice has found that a company has breached a non-prosecution agreement over the objection of that company,” adds Lynch.

“I want to be clear: the Department of Justice will not hesitate to file criminal charges for financial institutions that re-offend. The banks that cannot or will not clean up their act need to understand that this carries real consequences.”

In addition to its criminal conduct in the FX market, UBS has been required to plead guilty to felony wire fraud for its Libor-related conduct. The Swiss bank is also required to implement an institution-wide compliance programme designed to prevent future violations in FX and interest rate benchmark trading.

Assistant Attorney General, Bill Baer, explained that the guilty pleas come from the parent-level companies and that the DoJ has insisted upon three years of court supervised probation for each of the banks. They are all also expected to take remedial action aimed at improving their oversight of activity within the bank and ensuring that criminal activity can not take place within these institutions undetected in the future.

Lynch said that the parent-level guilty pleas mean that at each bank, the entire institution was affected in a systemic way.

“Sometimes you will see a situation where the activity is limited. This was systemic and impacted the banks so much that the parent-level pleas are appropriate,” she commented, adding later: “Having a guilty plea at the parent level by a major financial institution is not something they enter into lightly or with any great joy in their hearts.”

Profit & Loss reported earlier this week that this latest round of settlements is likely to be followed by criminal cases against individuals, and Lynch confirmed that the DoJ is investigating a number of individuals in connection with alleged FX market abuse, but said that she could not comment on these ongoing investigations. However, Lynch did note that the DoJ is requiring cooperation with the banks in targeting individuals who were involved in criminal behaviour.

Additionally, the Federal Reserve says that it will be requiring all six of the institutions fined to cooperate in its investigations regarding the individuals involved in perpetrating this FX market abuse.

galen@profit-loss.com  


Profit & Loss

Share This

Share on facebook
Facebook
Share on google
Google+
Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on reddit
Reddit

Related Posts in