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Five major lenders fined US$3.4b for failing to stop Libor price fixing
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GLOBAL regulators fined five major banks, including UBS, HSBC and Citigroup, US$3.4 billion for failing to stop their traders from trying to manipulate the foreign exchange market.
Royal Bank of Scotland and JPMorgan also face penalties in a year-long probe that has put the largely unregulated US$5-trillion-a-day market on a tighter leash. The banks earned a 30 percent discount for settling early.
Dozens of dealers have been suspended or fired for sharing confidential information about client orders and coordinating trades to make money from a foreign exchange benchmark used by asset managers and corporate treasurers to value their holdings in the latest scandal to hit the financial industry.
They used code names to identify clients without naming them and created online chatrooms with pseudonyms such as “the players,” “the 3 musketeers” and “1 team, 1 dream” in which to swap information. Those not involved were belittled.
Switzerland’s UBS swallowed the biggest penalty paying US$661 million to Britain’s Financial Services Authority and the US Commodity Futures Trading Commission.
UBS was ordered by Swiss regulator FINMA, which also said it had found serious misconduct in precious metals trading, to hand over 134 million Swiss francs (US$139 million) after failing to investigate a 2010 whistleblower’s report.
The misconduct at the banks stretched back to the previous decade and up until October 2013, more than a year after US and British started punishing banks for rigging the London interbank offered rate, or Libor, an interest rate benchmark.
RBS, which is 80 percent owned by the British government, received client complaints about foreign exchange transactions as far back as 2010 and a year later a dealer at the bank questioned its information sharing.
The bank said it regretted not responding more quickly to the complaints. The other banks were similarly apologetic.
Reflecting political and official exasperation that banks failed to stop the activity despite pledges to overhaul their culture and internal controls, the FCA levied a US$1.7 billion fine, the biggest in history of the City, the global hub for foreign exchange trading.
It also launched a review of the spot forex industry that will require firms to scrutinize trading and compliance systems and may involve looking at other markets such as derivatives and precious metals.
“Today’s record fines mark the gravity of the failings we found and firms need to take responsibility for putting it right,” FCA’s Chief Executive Martin Wheatley said.
“They must make sure their traders do not game the system to boost profits or leave the ethics of their conduct to compliance to worry about.”
Barclays, which had been in settlement talks with both the FCA and the CFTC, made a “commercial decision” to pull out of the discussions, the FCA said. Its investigation of the banks continues.
The British bank did not join the group settlement because of complications with the New York regulator, the Department of Financial Services, people familiar with the matter said.
The FCA said its enforcement activities were focused on the five banks plus Barclays, signaling that Deutsche Bank would not face a fine from it.
Lenders could face more penalties, however, with the US Department of Justice and New York’s Department of Financial Services still investigating the scandal. Britain’s Serious Fraud Office is also investigating.
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