Regulators hit five leading banks with FX manipulation fines of over $3bln

The US (CFTC), UK (Financial Conduct Authority) and Swiss (Finma) regulators delivered a concerted and coordinated attack on the manipulations that have dogged the FX market for too long. The three regulators have hit five top global FX banks with fines totally over $3bln, but there is certainly more to come.

The banks: Citi, HSBC, JPMorgan, RBS and UBS  (Barclays are negotiating their own settlement with regulators), are all accused of manipulating the FX benchmark fixings, front running client orders and collusion. The authorities have also released what amount to damning transcripts from private FX chat rooms that clearly show that traders at these banks were colluding and front running client orders.

CFTC has released transcripts from the private FX chat rooms used by the traders, whilst the UK FCA provides similar examples of manipulation including a number of videos with graphics explaining what went on in the chat rooms ahead of the fixings, below is a visual from the video of Citi attempted Fix manipulation, and one from HSBC attempting to manipulate the fix.

Example of chat room manipulation

Citi attempt to manipulate the FX fix

Example of chat room manipulation-HSBC

HSBC attempt to manipulate the FX fix

Commenting on the fines, Tim Maddad Chairman of the CFTC said:

“Integrity of the market place is a paramount concern to the CFTC, and today’s enforcement action should be seen as a message to all market participants that wrongdoing and foul play in the financial markets is unacceptable and will not be tolerated,”

Here is a summary of the FX market and example of attempted manipulation at each of the Banks.

Analysts at Morgan Stanley estimate that the total FX related fines for the top ten global FX banks could quadruple over the next two years to more than $16.5bn, requiring them to set aside an additional $10.3bn of provisions for FX related fines. They further estimate that the total fines levied on the banking industry would top some $300bn!

Alex CartoonBy way of gallows humor, I couldn’t resist including this Alex cartoon

Fixing the fix: In September the Swiss based Financial Stability Board (FSB), published their final report and recommendations for Foreign Exchange Benchmarks, which followed an initial consultative report published in July.

The report set out a number of recommendations for reform in the FX markets and in the benchmark rates that have been identified as pre-eminent by market participants – in particular, the WM/Reuters (WMR) 4pm London fix produced by the WM Company. These recommendations fall into the following broad categories:

  • the calculation methodology of the WMR benchmark rates;
  • recommendations from a review by the International Organization of Securities Commissions (IOSCO) of the WM fixes – this review is included in the report published today, and is also being published separately by IOSCO;
  • the publication of reference rates by central banks;
  • market infrastructure in relation to the execution of fix trades; and
  • the behavior of market participants around the time of the major FX benchmarks (primarily the WMR 4pm London fix).

More here

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