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Last updated: May 20, 2015 6:37 pm

Six banks fined $5.6bn over rigging of foreign exchange markets

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Six global banks will pay more than $5.6bn to settle allegations that they rigged foreign exchange markets, in a scandal the FBI said involved criminality “on a massive scale”.

Four banks also agreed to plead guilty to conspiring to fix prices and rig bids in the $5.3tn a day forex market, in what they hope will draw a line under one of the biggest cases of misconduct in banking since the global financial crisis.

Announcing the settlement, the US Department of Justice said that between December 2007 and January 2013, traders at Citigroup, JPMorgan Chase, Barclays and Royal Bank of Scotland who described themselves as “The Cartel” used an exclusive chatroom and coded language to manipulate benchmark exchange rates, “in an effort to increase their profits”.

One Barclays trader wrote in a November 5, 2010 chat: “If you aint cheating, you aint trying”, according to the New York Department of Financial Services (DFS), which was part of the settlement.

Loretta Lynch, the US attorney-general, said the penalties the banks will pay were “fitting”, and “commensurate with the pervasive harm that was done”. The fines should “deter competitors from chasing profits without regard to fairness to law or public welfare”.

“This is a major blow for these banks, both financially and for their reputation,” said Mark Taylor, Dean of Warwick Business School, who sits on the Academic Advisory Group of the Bank of England’s Fair and Effective Markets Review.

“Questions will be asked as to why no CEO or senior figure has resigned at any of these banks as the size of this fine and the investigations so far have revealed the rigging of forex was part of the culture of these banks,” he said.

The revelation that traders colluded to move around currency exchange rates was particularly embarrassing for the banks because it occurred after they had paid billions of dollars to settle claims that their traders had tried to rig interbank lending rates. It has raised questions as to whether the industry learnt any lessons from the previous scandal.

More on the forex fines
 Tough justice  Explainer  Dark underbelly
The US Department of Justice — considered the corporate world’s harshest prosecutor — has become tougher, tearing up a UBS deal Philip Stafford takes a closer look at the forex market, explaining what a fix is and why it is needed in a currency market A harsh light has once more focused on the culture within global banks and their vast trading operations, writes Michael Mackenzie

Three banks were also fined an additional total of $400m for manipulating the Libor and Isdafix benchmarks, bringing the tally for the day to $6bn.

Global banks have now paid more than $10bn in relation to the forex scandal, exceeding the $9bn paid by a larger group of institutions to settle the Libor rigging claims.

Wednesday’s penalties take the total the banks have paid in fines and settlements since 2008 to more than $160bn.


Bank fines: wrong reaction

LONDON, ENGLAND - MAY 08: A Barclays sign outside a Barclays Plc bank branch on May 8, 2014 in London, England. Barclays announced yesterday that they will cut 14,000 jobs this year across the investment part of their company as part of a new strategy. (Photo by Dan Kitwood/Getty Images)

The relief that saw shares rise on penalties of $5.6bn is inappropriate, investors should be livid

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The banks who settled over forex — Barclays, Citigroup, JPMorgan Chase, RBS, Bank of America and UBS — are hoping the deal will allow them finally to draw a line under both affairs.

UBS escaped criminal charges on forex because it was the first to co-operate with investigators. But the DoJ found it had violated the terms of its Libor settlement, so the bank will plead guilty to rigging Libor and pay an additional fine over that issue.

The DoJ said UBS had engaged in deceptive trading and sales practices, including “undisclosed mark-ups” on certain FX transactions. It said on some occasions, “UBS traders and sale staff used hand signals to conceal those mark-ups from customers”.

Separate to the more than $2.5bn in total forex criminal penalties being paid to the DoJ, six banks will also be fined more than $1.8bn by the US Federal Reserve.

“The criminality occurred on a massive scale,” said Andrew McCabe, FBI assistant director. “The activities undermined transparent market-based exchange rates that serve as a critical benchmark to the economy.”

Barclays will pay the largest penalty, at more than $2.3bn. That partly reflects the fact that the bank is settling with the most agencies — including the DFS, the US Commodity Futures Trading Commission and the UK’s Financial Conduct Authority. The FCA’s fine, at £284m, is the largest in the regulator’s history.


Forex trading probes

Foreign exchange trading probes

After the manipulation of Libor the rigging of foreign currency markets was the next big scandal to hit the world’s biggest banks

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The CFTC also imposed a separate fine of $115m on Barclays for attempting to manipulate US dollar Isdafix swap rates, marking the first time it has taken action in connection with that benchmark.

Last year, the UK lender pulled out of a $4.3bn multi-bank forex settlement because the DFS was not part of the deal. Both parties agreed to be part of Wednesday’s resolution as long as DFS could exclude a probe into Barclays’ forex electronic trading platform, which will be concluded at a later date.

Barclays will also have to fire eight employees, including four who have left the bank in the past month, as part of its deal with the DFS, which has made individual accountability a key factor in its bank settlements. Unlike the DoJ, the DFS does not have to prove a criminal case against individuals.

Of the banks that are settling on Wednesday, the DFS only has jurisdiction over Barclays.

In addition to its forex settlement, Barclays will also pay $60m to resolve violations of its 2012 non-prosecution agreement for Libor — under which the bank agreed to not commit any additional wrongdoing for a certain period of time.

UBS had its non-prosecution agreement (NPA) scrapped entirely, marking the first time the DoJ has taken such a step. It will now plead guilty to one count of wire fraud for rigging Libor and pay an additional $203m fine. UBS will also pay $342m to the Federal Reserve over forex.

Axel Weber, chairman, and Sergio Ermotti, chief executive, said: “The conduct of a small number of employees was unacceptable and we have taken appropriate disciplinary actions.”

RBS’s deferred prosecution agreement for Libor expired this year so its settlement in that case is not affected. In the forex probe, RBS has to pay about $395m to the DoJ, and $274m to the Federal Reserve.

“The serious misconduct that lies at the heart of today’s announcements has no place in the bank that I am building,” said Ross McEwan, RBS chief executive. “Pleading guilty for such wrongdoing is another stark reminder of how badly this bank lost its way and how important it is for us to regain trust.”

JPMorgan Chase will pay $550m to the DoJ and $342m to the Federal Reserve, while Citigroup was fined $925m and $342m respectively by the same agencies. This month Citigroup reported that the DoJ had dropped its investigation into the bank for potential Libor rigging while a similar probe against JPMorgan is continuing. Bank of America was not sanctioned by the DoJ, but will pay $205m to the Federal Reserve.

The DoJ, the DFS and other agencies are continuing to investigate other banks, including HSBC and Deutsche Bank, for alleged forex rigging and settlements in those cases could come later this year.

Ms Lynch would not comment on whether the DoJ would charge individuals, saying only: “The investigation is ongoing.”

Shares rose among the European banks fined, with UBS up 3.4 per cent, Barclays up 2.5 per cent and RBS up 1.6 per cent in afternoon trading in London. The affected US banks fell marginally, with Citi down 0.42 per cent, JPMorgan down 0.36 per cent and Bank of America down 0.24 per cent.

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