Six of the world’s biggest banks will pay nearly $6 billion — bringing the total sums paid in connection with alleged forex manipulation to about $10 billion. These banks are also among the world’s biggest foreign-exchange traders. Five of them agreed to plead guilty to charges tied to a currency-rigging probe as they seek to wind down almost half a decade of enforcement actions. Separately, the Federal Reserve fined Bank of America Corp $205 million for unsound practices in foreign exchange.
Citicorp, JPMorgan Chase & Co., Barclays Plc and Royal Bank of Scotland Plc agreed to plead guilty to conspiring to manipulate the price of US dollars and euros in settlements with the Department of Justice. UBS Group AG agreed to plead guilty to charges related to interest-rate manipulation. They were the first to cooperate with antitrust investigators and were granted immunity in the currency probe.
Between December 2007 and January 2013, forex traders at Citi, JPMorgan, Barclays, RBS and a few other big banks colluded by sharing proprietary information on pending client orders ahead of the 4 p.m. fix. This information sharing was allegedly done through instant-message groups – with catchy names such as “The Cartel,” “The Mafia,” and “The Bandits’ Club” – that were accessible only to a few senior traders at banks who are the most active in the forex market.
The audacious nature of the dealing desks is revealed in the chatroom transcripts as one employee at Barclays remarks, “If you aint cheating, you aint trying.”
The banks’ clients suffered from the market being skewed. The price movements arising from the manipulation are so small that holidaymakers are unlikely to notice a big difference when buying foreign currency.
The embarrassing revelation that traders colluded to manipulate foreign exchange rates came so soon after they paid billions of dollars to settle claims that their traders had tried to rig interbank lending rates. It has raised questions as to whether the global banks learnt any lesson from the previous scandal and strengthened their governance, risk management, compliance and audit policies and procedures effectively to ensure that their activities complied with safe and sound banking practices. Given the size of the global foreign exchange market of $5-trillion-a-day, a small manipulation may reap a huge profit for the traders.
Global banks have now paid more than $10 billion over the forex scandal, exceeding the $9 billion paid by a larger group of institutions to settle the London interbank offered rate (Libor) — an interest rate benchmark — rigging claims.
The DoJ, the DFS and other agencies are continuing to investigate other banks, including HSBC and Deutsche Bank, for alleged forex rigging and settlements in those cases could come later this year. This kind of manipulation further undermines trust in the financial system, which has been through a series of scandals.
David McLaughlin, Tom Schoenberg and Liam Baughan: “Six Banks Pay $5.8 Billion, Five Plead Guilty to Market Rigging”, BloombergBusiness, 20 May 2015.
Gina Chon, Caroline Binham and Laura Noonan: “Six banks fined $5.6bn over rigging of foreign exchange markets”, Financial Times, 20 May 2015.
Karen Freifeld, Steve Slater and Katrina Bart: “Major banks admit guilt in forex probe, fined $6 billion”, Reuters, 20 May 2015.