Banks fined £2bn by watchdogs over forex rigging

FIVE of the world’s biggest banks including RBS are to pay fines totalling £2 billion after regulators today lifted the lid on the latest scandal to rock the industry.

Traders from the banks shared information about client activity in online chatrooms to rig the £3 trillion-a-day foreign exchange (forex) markets.

Politicians urged the authorities to pursue criminal prosecutions and called for the reform of the banking bonus culture after the fines were imposed on Citibank, HSBC, JP Morgan Chase, UBS and RBS.

Barclays is still having discussions with regulators on the issue, which comes at a time when banks’ reputations are still tarnished by Libor-fixing.

A record fine of £1.1bn was imposed by the UK’s Financial Control Authority (FCA) while the US regulator, the Commodity Futures Trading Commission (CFTC), has fined the same banks a total of more than $1.4bn (£900 million).

In the case of the taxpayer-funded Royal Bank of Scotland, it was fined £217m by the FCA as well as $290m (£182m) by the CFTC.

The FCA penalties dwarf the £532m imposed by the regulator on banks and City brokers over the previous big regulatory scandal involving the manipulation of the interbank lending rate, Libor.

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Chancellor George Osborne said a number of traders have been suspended or fired and the Serious Fraud Office is conducting criminal investigations.

“The banks that employed them face big fines and I will ensure that these fines are used for the wider public good,” Mr Osborne said.

According to the FCA, the ­manipulation of exchange markets occurred when traders at different banks formed tight-knit groups in which information was shared about client activity, including using codenames to identify clients without naming them.

Names given to these groups included “The Players”, “The 3 Musketeers”, “1 Team, 1 Dream”, “A Co-operative” and “The A-team”.

Traders shared the information obtained through these groups to help them work out their trading strategies, which enabled them to manipulate ­exchange rates to profit the banks at the expense of clients.

This helped them attempt to ensure that the rate at which the bank had agreed to sell a particular currency to its clients was higher than the average rate it had bought that currency for in the market. If successful, the bank would make a profit.

Their focus was on the 4pm fix, the daily minute in the London trading day when major ­exchange rates are set.

A typical fix would see the bank with the largest amount of money to trade that day “build” on the sum by working with other banks to take on their ­orders, sometimes totalling hundreds of millions of pounds.

Transcripts of conversations held in chatrooms and disclosed by the FCA yesterday showed how the traders referred to “free money” and not wanting other “numpties” in the market to know about information within their group.

Using jargon such as “betty” to describe sterling, they plotted to rig the rates and congratulated each other when successful, such as in one episode which generated a profit of $615,000 (£389,000) for RBS.

Transcripts revealed traders saying “I don my hat” and “[RBS] is god”.

Yesterday, RBS’s chief executive Ross McEwan said: “To say that I am angry about the misconduct would be an understatement. We had people working at this bank who did not know the difference between right and wrong, or worse, didn’t care about the distinction.”

Mr McEwan said those responsible would have bonuses clawed back or face disciplinary procedures. The bank said six were undergoing a disciplinary process, with three suspended. A statement about the probe will follow by the end of the year.

The bank, which has analysed millions of documents, said it was reviewing the conduct of more than 50 current and former members of trading staff around the world, as well as dozens of supervisors and senior management.

HSBC was fined £389m, including £216m from the FCA and £173m from the CFTC.

FCA chief executive Martin Wheatley said: “Today’s record fines mark the gravity of the failings we found and firms need to take responsibility for putting it right. They must make sure their traders do not game the system to boost profits or leave the ethics of their conduct to compliance [staff] to worry about.”

The Bank of England was dragged into the scandal amid claims officials knew about the practice.

An inquiry by the Bank of England found that no official was involved in any unlawful or improper behaviour in the forex market and governor Mark Carney distanced the Bank from the scandal

However, one member of staff was aware that bank traders were sharing information about client orders for the purpose of “matching” – a practice that can increase the potential for improper conduct – but did not raise the alarm.

Shadow chancellor Ed Balls said: “This is yet another shocking scandal involving the banks and underlines the need for fundamental reform and cultural change.

“It is right that the banks involved have been fined, but the Serious Fraud Office must also have the resources it needs to pursue the individuals involved. The public needs to know that individuals involved in, or who had knowledge of fraudulent activity, will now be held to ­account, including with criminal prosecutions.

“This report shows that reform of our banks has a long way to go. We need reforms to pay and bonuses.”

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