Banks face tougher scrutiny following record FCA fines

Banks are being scrutinised by the UK’s Financial Conduct Authority (FCA) following record fines imposed in three countries over foreign exchange rigging.

On the announcement of the operation, to make all banks remove the causes of their failings, George Osborne, the UK’s chancellor of the exchequer, said: “Today we take tough action to clean up corruption by a few so that we have a financial system that works for everyone.

“It’s part of a long-term plan that is fixing what went wrong in Britain’s banks and our economy.”

The markets were manipulated in a free-for-all from 2008 to 2013, reported the FCA after the investigation that led to the fines.

There were “ineffective controls” so that traders could put their banks’ gains before clients’ interests.

In this corrupt culture traders sold foreign currency to clients at a higher price than the figure paid so that the bank profited.

Although from different banks, they formed tightly knit groups to share information about client activity. They used code names for clients, including The Players, The Three Musketeers and The A-team.

In one instance RBS was reported to have made $615,000 (£393,000, €494,000) after traders drove down the pound against the dollar and paid lower amounts to clients.

The FCA fined Citibank £225,575,000 ($352,873,000, €283,308,000), HSBC £216,363,000, JPMorgan Chase £222,166,000, RBS £217m and UBS £233,814,000.

The Commodities and Futures Trading Commission, the US fraud protection body, fined Citibank $310m, JPMorgan Chase $310m, RBS $290m, UBS $290m and HSBC $275m.

Finma, Switzerland’s supervisory authority, fined UBS 134m francs ($139m, £89m, €112m).

Separately the Office of the Comptroller of the Currency, the US finance industry regulator, fined Citibank and JPMorgan Chase $350m each and Bank of America $250m.

Barclays was named but not fined. It “concluded that it is in the interests of the company to seek a more general co-ordinated settlement”. Observers speculate that a penalty imposed on Barclays will push the fines total past £3bn.

The regulators emphasise that the banks were not penalised for currency manipulation but for failing to manage staff.

RBS chief executive Ross McEwan said: “To say I’m angry would be an understatement. We had people working in this bank who did not know the difference between right and wrong and put their interests ahead of clients.”

In its own investigation the bank is questioning 50 present and former employees, three of whom have been suspended.
RBS may claw back bonuses, is considering the implications for senior management, and will pay no more bonuses until the investigation is completed. A statement is due this month.

Martin Wheatley, the FCA chief executive, condemned conduct that “imperils market integrity or the wider UK financial system”. He said: “Senior management commitments to change need to become a reality in every area of their business.”

UK Treasury minister Andrea Leadsom said the corrupt employees “will not be back in a dealing room on a big salary”.
Professor Mark Taylor, of Warwick Business School, a former foreign exchange trader and Bank of England senior economist, observed: “The interesting thing is that there are no individuals named as yet, and no individual prosecutions. This is still a possibility, and it will be interesting to see how that pans out.

“At the moment it’s really only the shareholders – which in the case of RBS means British taxpayers – who suffer from these fines.

“This is another blow for the City of London. The world financial system centres on London and it’s vital for the UK economy that London continues in that role.”

Martin Mallett, the Bank of England’s senior foreign exchange dealer, has been sacked after an official investigation – for irregularities not involving currency rigging.