12 Nov 2014

UK banks to pay massive fines for rigging foreign exchange market

Today, the Royal Bank of Scotland and HSBC were forced to admit their role in the manipulation of global foreign exchange (Forex) markets, and Barclays is expected soon to follow suit.

So bad was the traders’ behaviour that the FCA – the UK financial regulator – handed out its biggest fines to date, £1.1 billion.

It wasn’t just RBS and HSBC. The wrongdoing also occurred inside UBS, JP Morgan and Citigroup. In other words, a line up of the world’s biggest banks.

As if the revelations themselves weren’t bad enough, even more shocking is the fact that the rigging took place as recently as last year and way after financial markets – and the world – were rocked by the Libor rigging scandal.

Why’s that so bad? Because in this post-financial crisis period, banks had purported to have cleaned themselves up – to have routed out all the bad eggs and reformed the system, placing customers and investors’ interests at the heart of what they do.

Yet today we learn that wasn’t exactly the case. That despite massive fines and criminal sentences for Libor, dozens of traders across these banks sought to do exactly the same thing in the foreign exchange currency market too.

And even more worrying, they got away with it! So just how strong are these new checks and controls inside our reformed banks? Answer: Not very.

 

The grim detail: In an all too familiar tale of greed, today we learned that certain foreign exchange traders inside the banks had co-ordinated their trading with one another to manipulate “benchmark” foreign exchange rates.

The regulators said traders had used private chat rooms to co-ordinate their activities. They shared confidential customer order information and trading positions, and altered their positions accordingly to “benefit the interests of the collective group”.

In other words, to boost the banks’ profits and hence their own bonuses.

And just like Libor, the brazen traders gave their groups code names “the 3 musketeers”, “the A-team” and “1 team, 1 dream”.

Incredibly, traders inside many of the same banks were found guilty of rigging Libor – the interbank lending rate which is used to set prices all over the world.

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Many have since gone to jail but that didn’t appear to be a deterrent for their counterparts over on the Forex desk.

RBS, Barclays and HSBC launched their own investigations into Forex rigging when news of the scandal became public last year and many traders have been suspended. Details have been passed to the Serious Fraud Office, which is also conducting its own criminal probe.

But it’s impossible to tell how much this will end up costing.

Because, like Libor, the Forex benchmark is used by all sorts of institutions – pension funds, money managers and the like – to set the price they pay for foreign currencies. So many of them could launch high-profile lawsuits too, seeking damages.

Sources inside RBS in the past have told me they literally have no idea how much the Forex scandal may end up costing the bank.

It could take years. And that’s bad news for all of us because such uncertainties will only delay the point at which the taxpayer can start getting their money back.

And as incredible as it may seem, yet further scandals still lurk. Regulators, don’t forget, are still investigating benchmark rates for the crude oil and global swaps markets. So more pain to come.

All of which begs the question: will the global banking system ever clean its act up? Or is the lure of high salaries and bonuses just too juicy to really change behaviour?

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9 reader comments

  1. David Campbell says:

    Just one question – where is the investigative reporting here? Ok, so the banks are being fined. What happens to the fine? Is it just punitive and funds for HMRC’s coffers or will those individuals and corporations who were victimized be issued an award? I, for one, would like to know that.

  2. Paul Garrod says:

    My small business specialises in reconciling overseas corporate contractual transgressions. My income is totally contingent therefore I am reliant on my investigative and tenacious skills in securing successful closures; payment. I am in awe of the arrogance of a local RBS manager who sneered at my current tight cash-flow situation, whilst his working for a bank that has been seen to takeover ownership of small businesses following excessive pressures for them to take out unnecessary loans and overdrafts, then to call them in and effectively snuff out the owners. This in addition to total mismanagement, resulting in a huge HMG bale-out and add now the fines for Libor tweaking; hypocrites to the extreme.

  3. Alan says:

    The FCA’s track record proves it doesn’t regulate the banks, it regulates complaints against the banks. An industry buffer is a very old scam. The piecemeal fines (in proportion to a banks profits) will ultimately be squeezed from the taxpayer. Maybe the complicit government ( please explain why private liability suddenly became public liability?) can help? The sheer criminality beggars belief.

  4. Disbeliever says:

    So the banks are paying fines for what appears to amount to fraudulance. No! The ordinary taxpayer is footing the bill. After all didn’t we bail them out with our money and hasn’t the government and BoE done everything to provide them with free money at the expense of the rest of the country?

  5. Stephen Townsley says:

    In the recent past a man who was running a website where copyright material was downloaded was jailed for 32 months based on a guesstimated loss by the recording industry. A man in the north east was jailed for a week for stealing meat worth £12 from Sainsbury’s after his benefits were sanctioned because he missed an appointment due to a disability. During the riots in 2011 people were jailed for stealing a bottle of water.

    Now the banks are fined for stealing billions after being told to stop a few years ago. So it’s a second offence. They are fined and have to pay back a little of what they have stolen. RBS, the state owned bank, will have to use taxpayer money to pay it’s fine to the taxpayer.

    If the man who stole to feed himself were treated to the same level of justice then his fine would have been about 20grammes of offal given back to Sainsbury.

    This process shows up the banks but it also shows the value of our society and the justice system that criminalises the poor forced to steal to feed themselves but keeps the bankers in champagne.

    It feels like a perverse version of monopoly where the taxpayer seems to pay bankers huge amounts for passing ‘Go’ and provides a large stack of ‘Get of Jail free’ cards if they are caught with a suitcase of money when they commit fraud.

  6. DU 48 says:

    To top it all, Apparently RBS will not be mailing out renewed credit cards to people who live, for example, in Brazil.

    The reason? RBS regards countries like Brazil as corrupt and liable to fraudulent practices!

    British hypocrisy at its worst.

  7. Noah says:

    Clear evidence The City is out of control and needs the tighter regulation of Europe. About time someone stopped and did a documentary to show what a make believe world the financial sector is – it’s not adding any value to the economy – but the British economy is now trapped – can’t live without the tax receipts from the Banks, or the bonuses. These traders, bankers, hedge funds it’s all vulgar gambling – but not with their own money – how banking used to be. Lots of jail sentences might send a message to these crooks in expensive suits.

  8. Radek says:

    “in this post-financial crisis period, banks had purported to have cleaned themselves up – to have routed out all the bad eggs and reformed the system, placing customers and investors’ interests at the heart of what they do”
    HAHAHAHAHAHAHAHAHAHAHAHHAHAHAHAHAHA

  9. Philip Edwards says:

    Siobhan,

    Any bankers been charged yet?

    Any of them in jail?

    No?

    Thought not.

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