OCC Fine Brings Bank Currency Settlement to $4.3 Billion

By Suzi Ring, Liam Vaughan and Jesse Hamilton Nov 12, 2014 7:00 AM PT

Nov. 12 (Bloomberg) -- Bank of England Governor Mark Carney speaks at a news conference in London about the firing of its chief currency dealer a day before he was faulted in an independent investigation for failing to alert his superiors that traders were sharing information about client orders.

(Excerpt. Source: Bloomberg)Regulators in the U.S., Britain and Switzerland ordered six banks to pay about $4.3 billion in the first wave of penalties since authorities began a global probe into the rigging of key foreign-exchange benchmarks last year.

The Office of Comptroller of the Currency fined Bank of America Corp. $250 million, while JPMorgan Chase & Co. and Citigroup Inc. will pay $350 million each, according to a statement. That adds to $3.3 billion of penalties announced earlier today by the U.S. Commodity Futures Trading Commission, Britain’s Financial Conduct Authority and the Swiss Financial Market Supervisory Authority.

Banks and individuals could still face further penalties and litigation following the 13-month probe into allegations dealers at the biggest banks colluded with counterparts at other firms to rig benchmarks used by fund managers to determine what they pay for foreign currency.

The Justice Department, which is working with the Federal Reserve, and Britain’s Serious Fraud Office are still leading criminal probes into the $5.3 trillion-a-day currency market.
Broken Benchmarks

“Many will see this as drawing a line under this sad episode,” said Tim Dawson, an analyst at Helvea SA in Geneva who covers financial firms. “We are less optimistic,” he said. The banks are “likely to face a heavy burden of potential litigation in coming years.”

Photographer: Philipp Schmidli/BloombergAttendees pass an advertisement for UBS AG during a break in sessions at the Swiss... Read More

Abusing Trust

Citigroup and JPMorgan, two of the biggest players in the currency trading market, will pay about $1 billion each in penalties to the OCC, CFTC, and FCA. UBS AG was earlier today fined about $800 million, Royal Bank of Scotland Group Plc$634 million and HSBC Holdings Plc $618 million. Barclays Plc, which had been in settlement talks, said it wasn’t ready for a deal.

The regulators also released transcripts of chat groups dubbed ``the 3 musketeers,'' ``the A-team'' and ``1 team, 1 dream,'' showing traders sharing client orders.


“The traders put their own interest ahead of their customers, they manipulated the market -- or attempted to manipulate the market -- and abused the trust of the public,” FCA Chief Executive Officer Martin Wheatley told reporters at a briefing in London today. The regulator will press firms to review their bonus plans and claw back payments already made.

While the FCA has completed its probe in less than half the time it’s taken to investigate the rigging of Libor and other interest rate benchmarks, lawyers criticized the settlement for leaving unanswered how clients will be compensated, and a U.S. regulator shunned it for being too weak.

Photographer: Matthew Lloyd/BloombergFCA Chief Executive Officer Martin Wheatley told reporters at a briefing in London... Read More

“Barclays is the only bank we are currently investigating from an enforcement perspective,” Tracey McDermott, the FCA’s director of enforcement, said.

Deutsche Bank

The New York State Department of Financial Services, led by Superintendent Benjamin Lawsky, refused to sign on to the FCA settlement because he viewed it as too weak, said a person briefed on the matter who asked not to be named because the discussions were private. Barclays, which is regulated by the DFS, withdrew from the group settlement because of issues with Lawsky’s department, another person said.

About 30 other banks, including Deutsche Bank AG, will still have to overhaul their practices. The FCA isn’t planning to fine Deutsche Bank, the second biggest player by market share in foreign exchange.

Credit Suisse Group AG has also been given the all-clear from the U.K. regulator, a spokesman for the Swiss bank said.

“The fines alone are not sufficient, and there is plenty more work for the regulator to do to ensure that those customers affected are properly compensated,” said Stevie Loughrey, a lawyer at London-based law firm Carter-Ruck. The fines “will offer no comfort whatsoever to those bank customers who have suffered significant losses.”


‘Ineffective Controls’

The probes were initially into whether traders colluded to manipulate the WM/Reuters benchmark rates. They have expanded to include whether traders used confidential information to take bets on unauthorized personal accounts, and whether sales desks charged clients excessive commissions. More than 30 traders have been fired, suspended, put on leave, or resigned since the probes began last year.
The FCA said its fines relate to “ineffective” controls at the banks between Jan. 1, 2008 and Oct. 15, 2013 that allowed the banks to put their “interests ahead of those of their clients, other market participants and the wider U.K. financial system.” These failings allowed traders at the banks to behave “unacceptably,” the FCA said.

“They shared information about clients’ activities which they had been trusted to keep confidential and attempted to manipulate G-10 spot foreign-exchange currency rates, including in collusion with traders at other firms, in a way that could disadvantage those clients and the market,” the FCA said.

Largest Fines

Today’s settlement includes the FCA’s largest-ever fines and marks first time the regulator has entered into a settlement with a group of banks. Previously, the regulator’s largest fine was a 160 million-pound penalty against UBS over the manipulation of the London interbank offered rate in 2012. The FCA announced its formal probe in October 2013, four months after Bloomberg News reported traders colluded to manipulate the WM/Reuters rates.

The FCA said it plans to “progress” its probe into Barclays, which wasn’t part of the settlement, to cover its wider foreign exchange trading business.

“We will continue to engage with these authorities, including the FCA and CFTC, with the objective of bringing this to resolution in due course,” Barclays said in a statement.

‘Severely Violated’

UBS, Switzerland’s largest bank, was ordered to give up 134 million Swiss francs ($139 million) in profit after the Zurich-based bank was found to have “severely violated” the requirement for proper business conduct in currency markets, Finma said. The bank was also ordered to cap bonuses for foreign-exchange and precious-metals bankers.

Finma is also probing 11 employees.

The fines come more than two years after the first banks settled with U.K. and US authorities over allegations they rigged the London interbank offered rate, a benchmark interest rate used in $300 trillion of securities including swaps and home loans. A dozen firms have so far been fined at least $6.5 billion in investigations related to Libor and its derivatives. UBS was fined about $1.5 billion in that probe.

The Libor investigations, which have not yet concluded, sparked a broader review of dozens of benchmarks used in markets from oil to precious metals.

To contact the reporters on this story: Suzi Ring in London at sring5@bloomberg.net; Liam Vaughan in London at lvaughan6@bloomberg.net

To contact the editors responsible for this story: Heather Smith at hsmith26@bloomberg.net Edward Evans